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NORTH CAROLINA 

REGISTER 



ISbLUME 12 # ISSUE 14 • Pages 1230-1406 
January 15, 1998 






.'^ 






IN THIS ISSUE 

Narrow Therapeutic Index Drugs 

Voting Rights Letter 

Agriculture 

Environment and Natural Resources 

Health and Human Services 

Insurance 

Justice 

Medical Examiners, Board of . 

Mortuary Science, Board of 

Opticians, Board of 

Revenue 

Secretary of State 

Transportation 

Rules Review Commission 

Contested Case Decisions 



PUBLISHED BY 

The Office of Administrative Hearings 
Rules Division 
PO Drawer 27447 
Raleigh, NC 27611-7447 
Telephone (919) 733-2678 
Fax (919) 733-3462 



This publication is printed on permanent, acid-free paper in compliance with G.S. 125-11.13 



For those persons that have questions or concerns regarding the Administrative Procedure Act or any of its 
components, consult with the agencies below. The bolded headings are typical issues which the given agency 
can address, but are not inclusive. 



i 



Rule Notices. Filings. Register. Deadlines. Copies of Proposed Rules, etc. 

Office of Administram e Hearings 

Rules Division 

Capehart-Crockei House (919) 733-2678 

424 North Blount Street <919) 733-3462 FAX 

Raleigh, North Carolina 27601-2817 



contact N-foUi Masich. Director APA Services 
Rub\ Creech, Publications Coordinator 



mmasich'Soah. state nc us 
rcreech a oah state nc us 



Fiscal Notes & Economic Analysis 

Office of State Budget and Management 

116 West Jones Sueet 

Raleigh. North Carolina 27603-8005 

contact: Mark Sisak. Economist III 
Anna Tefft, Economist II 



Rule Review and Legal Issues 

Rules Re\ie\\ Comnussion 
I'lO'' Glenwood Ave.. Suite 159 
Raleigh. North Carolina 27605 

contact Joe DeLuca Jr . Staff Director Counsel 
Bobb\ Br%an, Staff Attorney 



(919)733-7061 
(919)733-0640 FAX 

msisak@-osbm state nc us 

atefft fl~ osbm state nc us 



(919)733-2721 
(919) 733-9415 FAX 



i 



Legisiative Process Concerning Rule Making 

Joint Legislati\e Administrative Procedure Oversight CotmniJtee 

545 Legislative OEBce Building 

300 North Salisburv Street (919)733-2578 

Raleigh, North Carolina 276 U (919J 715-5460 FAX 



contact: Mar\' Shuping, Staff Liaison 



man s'S^ms ncga state nc us 



County and Municipality Government Questions or Notification 

NC Association of Count}- Commissioners 

215 North Dawson Street (919) 715-2893 

Raleigh. North Carolina 27603 

contact: Jim Blackburn or Rebecca Troutman 



NC League of Municipalities 
215 North Dawson Street 
Raleigh. North Carolina 27603 

contact: Paula Thomas 



(919)715-4000 



i 



This publication is printed on permanent, acid-free paper m compliance with G.S. 125-11.13 



NORTH CAROLINA 
REGISTER 




Volume 12, Issue 14 
Pages 1230 - 1406 



January 15, 1998 



This issue contains documents officially filed 
through December 19, 1997. 



Office of Administrative Hearings 

Rules Division 

424 North Blount Street (27601) 

PO Drawer 27447 

Raleigh, NC 27611-7447 

(919) 733-2678 

FAX (919) 733-3462 



Julian Mann III, Director 

Bradley Buie, Deputy Director 

Molly Masich, Director of APA Services 

Ruby Creech, Publications Coordinator 

Jean Shirley, Editorial Assistant 
Linda Richardson, Editorial Assistant 



IN THIS ISSUE 
I. IN ADDITION 

Narrow Therapeutic Index Drugs 1230 

Voting Rights Letter 1231 - 1232 

II. RULE-MAKING PROCEEDINGS 
Environment and Natural Resources 

Environmental Management 1233 

III. PROPOSED RULES 

Agriculture 

Structural Pest Control Committee 1234 - 1252 

Environment and Natural Resources 

Departmental Rules 1266 - 1267 

Environmental Management 1267 - 1272 

Health and Human Services 

Commission for Health Services 1272 - 1281 

Department 1281 - 1282 

Insurance 

Financial Evaluation Division 1255 - 1262 

Fire and Rescue Services Division 1252 - 1253 

Home Inspector Licensure Board 1253 - 1255 

Market Conduct Division 1262 - 1263 

Property and Casualty Division 1255 

Justice 

Private Protective Services 1263 - 1266 

Licensing Boards 

Mortuary Science, Board of 1334 - 1338 

Opticians, Board of 1338 - 1340 

Revenue 

Corporate Income & Franchise Tax 1285 - 1288 

Individual Income Tax 1288 - 1296 

Individual Income: Inheritance & Gift Tax 1282 - 1283 

License & Excise Tax 1283 - 1285 

Motor Fuels Tax 1310 - 1312 

Sales & Use Tax 1296 - 1310 

Secretary of State 

Securities Division 1312 - 1333 

Transportation 

Motor Vehicles. Division of 1333 - 1334 

IV. TEMPORARY RULES 
Environment and Natural Resources 

Environmental Management 1348 - 1352 

Health Services 1352 - 1354 

Health and Human Services 

Medical Assistance 1341 - 1347 

Social Services 1347 - 1348 

Licensing Board 

Medical Board 1354 

V. RULES REVIEW COMMISSION 1355 - 1362 

VI. CONTESTED CASE DECISIONS 

Text of Selected Decisions 

96 OSP 0254 1363 - 1372 

96 OSP 0403 & 0654 1373 - 1405 

VII. CUMULATIVE INDEX 1 68 



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IN ADDITION 



This Section contains public notices that are required to be published in the Register or hax'e been approved by the Codifier 
of Rules for publication. 



NARROW THERAPEUTIC INDEX DRUGS DESIGNATED BY THE NORTH 
CAROLINA SECRETARY OF HUMAN RESOURCES 

Pursuant to N.C.G.S. §90-85. 27(4a), this is the publication from the North Carolina Board of Pharmacy of narrow therapeutic 
index drugs designated by the North Carolina Secretary of Human Resources upon the advice of the State Health Director, North 
Carolina Board of Pharmacy, and North Carolina Medical Board: 

Carbamazepine: all oral dosage forms 

Digoxin: all oral dosage forms 

Levothyroxine sodium tablets 

Lithium (including all salts): all oral dosage forms 

Phenytoin (including all salts): all oral dosage forms 

Theophylline (including all salts):all oral dosage forms 

Warfarin sodium tablets 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1230 



IN ADDITION 



U.S. Department of Justice 
Civil Rights Division 



IKP:GS:SBF:emr:jdp Voting Section 

DJ 166-012-3 PO. Box 66128 

97-3397 Washington, B.C. 20035-6128 

97-3873 

97-3912 



December 15, 1997 



Susan K. Nichols, Esq. 

Special Deputy Attorney General 

P.O, Box 629 

Raleigh, North Carolina 27602-0629 

Dear Ms, Nichols: 



This refers to Session Laws 1997-15, which permits a city manager, under cenain circumstances, to be an elected 
official of a city other than the one by which the manager is employed; 1997-211, which expands the list of relatives of a 
candidate who may not serve on a county board of elections; 1997-443, Part XXXI, which provides enabling legislation for the 
implementation of a statewide data elections management system; 1997-510, which authorizes county boards of elections to 
obtain reimbursement for legal advertising, provides procedures for one-stop absentee voting, and changes the begiiming of the 
absentee voting period; and 1981-225 and 1997-515, which amend state law relating to campaign finance for the State of North 
Carolina, submitted to the Attorney General pursuant to Section 5 of the Voting Rights Act, 42 U.S.C. 1973c. We received 
your submissions on October 16, and December 10, 1997; supplemental information was received on December 10, 1997.. 

Except as provided below, the Attorney General does not interpose any objection to the specified changes. However, 
we note that Section 5 expressly provides that the failure of the Attorney General to object does not bar subsequent litigation to 
enjoin the enforcement of the changes. See the Procedures for the Administration of Section 5 (28 C.F.R. 51.41). 

This letter also confirms your December 15, 1997, telephone conversation with Susan B. Fisch of our staff, in which 
you agreed that you would submit Session Law 1989-49, which permits a city manager to be an elected school board member 
under certain circumstances in the State of North Carolina, and that you would provide us with the necessary documentation to 
enable us to review Session Law 1989-49 under Section 5 of the Voting Rights Act. 

Because the voting changes included in Session Laws 1997-25 and 1989-49 are directly related, they must be reviewed 
simultaneously. Accordingly, it would be inappropriate for the Attorney General to make a preclearance determination on 
Session Law 1997-25 until the related change has been submitted for Section 5 review. See 28 C.F.R. 51.22(b) and 51.35. 

If you have any questions, you should contact Ms. Fisch at (202) 514-3539). Refer to File Nos. 97-3397 and 97-3912 
in any response to this letter so that your correspondence will be channeled properly. 

Session Law 1997-443, Pan XXXI, includes provisions that are enabling in nature. Therefore, any changes affecting 



1231 NORTH CAROLINA REGISTER January 15, 1998 12:14 



i 



IN ADDITION 



voting that are adopted by the state pursuant to this legislation will be subject to Section 5 review ( e.g. . statewide data elections 
management system). In addition. Session Law 1997-510 includes enabling provisions for local jurisdictions. Therefore, such 
jurisdictions are not relieved of their responsibility to seek Section 5 preclearance of any changes affecting voting that are 
adopted pursuant to this legislation ( e.g. . adoption of one-stop absentee voting). See 28 C.F.R. 51.15. 



Sincerely, 

Isabelle Katz Pinzler 

Acting Assistant Attorney General 

Civil Rights Division 



By: 



Elizabeth Johnson 
Chief, Voting Section 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1232 



RULE-MAKING PROCEEDINGS 



A Notice of Rule-making Proceedings is a siaiemeni of subject matter of the agency 's proposed rule making. The agency 
rmist publish a notice of the subject matter for public comment at least 60 days prior to publishing the proposed text of a 
rule. Publication of a temporary rule ser\es as a Notice of Rule-making Proceedings and can be found in the Register 
under the section heading of Temporary Rules. A Rule-making Agenda published by an agency sen-es as Rule-making 
Proceedings and can be found in the Register under the section heading of Rule-making Agendas. Statutory reference: 
G.S. 150B-21.2. 



TITLE 15A - EN\ IRONiMENT AND NATURAL 
RESOURCES 

CRAPTER 2 - ENVIRONMENTAL MANAGEMENT 

SUBCHAPTER 2B - SURFACE WATER AND 
\VT:TLAND STANDARDS 

^'btice of Rule-making Proceedings is hereby given by the 
DENR - Environmental Management Commission in 
accordance with G.S. 1508-21. 2. Tlie agency shall 
subsequently publish in the Register the text of the nde(s) it 
proposes to adopt as a result of this notice of rule-making 
proceedings and any comments received on this notice. 

Citation to Existing Rules Affected by tiiis Rule-Making: 

ISA NCAC 2B .0308 - .0309. Other ndes may be proposed 
in the course of the rule-making process. 



Authority for the rule-making: 

215.1: 143-21 5. 3(a)(1) 



G.S. 143-214.1: 143- 



Statement of the Subject Matter: The purpose of the 
proposal is to revise the Protected Area boundaries within 
two WS-IV nin-of-the-river water supplies. These water 
supplies are the Catawba River (City of Morganton 's water 
supply) and the Yadkin River (City of Wilkesboro's water 
supply). The water supplies are located in Burke and 
McDowell, and Wilkes Counties, respectively. Tliis proposal 
would reduce the size of the Protected Areas. In addition, the 
City of Winston-Salem is relocating the site of their future 
drinking water supply intake in the Yadkin River about 600 
feet upstream. TJiis necessitates relocating the associated 
WS-IV Critical Area boundary for this intake. 

Reason for Proposed Action: The Environmental 
Management Commission (EMC) was petitioned in earlx 
1996 to interpret the definition of the Protected Area [rule 
15A NCAC 2B .0202 (47)]. The question was raised whether 
the Protected Area boundar,- for WS-IV run-of-the-river water 
supplies should be measured either as ten miles "as-the-river- 
flows"or linearly. " On May 9, 1996, the EMC clarified the 
definition by stating that the "as-the-river-flows" method is 



the appropriate method in determining the Protected Area for 
WS-IV run-of-the-river water supplies. The EMC slated that 
each proposed modification to the WS-IV Protected Area must 
go through the nde-making process. The EMC also stated 
that local water supply protection ordinances would remain 
in effect until reclassification. 

Two requests to modify the Protected Area boundary have 
recently been received from McDowell and Wilkes Counties. 
Their requests affect t^vo water supplies, the Catawba River - 
(City of Morganton 's water supply source) and the Yadkin 
River - (City of Wilkesboro 's water supply source). 
The result of the proposed WS-IV ten-mile Protected Area 
boundary modifications will be that local governments having 
jurisdiction within the affected areas will have the option of 
revising their area of coverage for water supply watershed 
protection. In general, less area will be affected. The area 
affected by state permitting requirements for landfills, 
residual application sites and wastewater discharges will 
potentially also be reduced. Streams within the areas 
proposed for revision will be considered for reclassification. 
In general, mainstream waterbodies that are currently 
classified as WS-IV that are within the Protected Area being 
considered for revision, will become WS-V. and most affected 
tributaries will become Class C Affected waterbodies 
classified B will remain Class B. 

In addition, the City of Winston-Salem is relocating the site 
in the Yadkin River of the fixture water supply intake. This 
action requires that the associated WS-IV Critical Area 
boundary be revised. This area is proposed to be relocated 
about 600 feet upstream. 

Comment Procedures: Tlie purpose of this announcement is 
to encourage those interested in this proposal to provide 
written comments. Written comments, data, or other 
information relevant to this proposal must be submitted by 
March 16. 1998. It is very important that all interested and 
potentially affected persons or parties make their vie^vs known 
to the EMC whether in favor of or opposed to any and all 
provisions of the proposal being noticed. Written comments 
may be submitted to: Steve Zoufaly. DENR/Division of Water 
Qualitw Planning Branch. P.O. Box 29535. Raleigh. NC 
27626-0535. (919) 733-5083, extension 566. 



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PROPOSED RULES 



This Section contains the text of proposed rules. At least 60 days prior to the publication of text, the agency published a 
Notice of Rule-making Proceedings. The agency must accept comments on the proposed rule for at least 30 days from the 
publication date, or until the public hearing, or a later date if specified in the notice by the agency. The required comment 
period is 60 days for a rule that has a substantial economic impact of at least five million dollars ($5,000,000). Statutory 
reference: G.S. 150B-21.2. 



TITLE 2 - DEPARTMENT OF AGRICULTURE 

Notice is hereby given in accordance with G.S. 1 508-21. 2 
that the NC Structural Pest Control Committee intends 
to amend rules cited as 2 NCAC 34 .0102, .0302 - .0303, 
.0306. .0308 - .0309. .0312 - .0313, .0323, .0325, .0328, 
.0401 - .0404, .0406, .0501 - .0506, .0602, .0604 - .0605. 
.0701, .0703, .0803, .0902, .0904, .1101; and adopt rules 
cited as 2 NCAC 34 .0507 - .0508. Notice of Rule-making 
Proceedings was published in the Register on November 3, 
1997. 

Proposed Effective Date: July 1. 1998 

A Public Hearing will be corulucted at 8:30 a.m. on March 
4, 1998 at the Agriculture Building, Board Room (Room 
359), 2 W. Edenton St.. Raleigh, NC. 

Reason for Proposed Action: To clarify and update 
definitions; to change examination procedures; to increase 
training requirements for re-certification; to change certain 
duties of licensees; to clarify requirements for storage and 
labeling of pesticides; to expand disclosure requirements for 
pesticide applications; to make various changes in 
requirements for wood-destroying organism treatments; to 
make various changes regarding pest control treatments and 
fumigation; to make other changes to clarify, correct and 
update structural pest control rules; to provide for regulation 
of termite bait products used by pest control licensees. 

Comment Procedures: Written comments may be submitted 
no later than February 16, 1998, to Carl E. Falco, Secretary, 
North Carolina Structural Pest Control Committee, PO Box 
27647, Raleigh, NC 27611. 

Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 34 - STRUCTURAL PEST CONTROL 
DIVISION 

SECTION .0100 - INTRODUCTION AND 
DEFINITIONS 

.0102 DEFINITIONS 

For the purpose of interpretation of the rules, regulations, 
definitions, and requirements of the North Carolina Structural 
Pest Control Committee and the Structural Pest Control Law, 



and unless otherwise required by the context, the following 
definitions shall prevail, to wit: 

(1) "Act and/or law" means the Structural Pest Control 
Act of North Carolina of 1955. 

(2) "Active infestation of a specific organism" means 
evidence of present activity by that organism, 
visible in, on, or under a structure, or in or on 
debris under the structure. 

(3) "Active ingredient" means an ingredient which will 
or is intended to prevent, destroy, repel, or 
mitigate any pest. 

(3) {4j "Acutely toxic rodenticidal baits" means all 
baits t ha t con t ain roden t icidcs othe r t han bai - ium 
carbona t e, — norbormidc, — red — squill, — and — the 
an t i c oagulants, that, as formulated, are classified as 
Toxicity Category 1 or U (Signal Word "Danger" or 
"Warning") under 40 CFR Part 156. 10. 

i4i i5} "Board of Agriculture" means the Board of 
Agriculture of the State of North Carolina. 

t5) £6} "Commercial certified applicator" shall mean 
any certified applicator employed by a licensed 
individual. 

(6) "C o mmon labo r e r " as used in G.S. 106-65.31 of 

t he S t ructural Pes t Con tr ol Ac t shall mean an 
employee of a licensed s tr uctural — p est cont r ol 
o p e r a tor who do e s no t e ngage in o r su p e r vis e th e 
mixing or a p plication of pes t icides fo r t he con t rol 
of s tr uc t u r al p ests. 

(7) "Commercial structure" means any structure which 
is not a residential structure; including but not 
limited to shopping centers, offices, nursing homes 
and similar structures. 

(8) "Complete surface residual spray" means the 
over-all application of any pesticide by spray or 
otherwise, to any surface areas within, on, under, 
or adjacent to, any structure in such a manner that 
the pesticide will adhere to surfaces and remain 
toxic to household pests and rodents or other pests 
for an extended period of time. 

(9) "Continuing education units" or "CEU" means 
units of non-credit education awarded by the 
Division of continuing educa t ion. Continuing 
Studies. North Carolina State University or 
comparable educational institution, for 
satisfactorily completing course work. 

(10) "Continuing certification unit" or "CCU" means a 
unit of credit awarded by the Committe e Division 
upon satisfactory completion of one clock hour of 
ins tr uc t ion in an approved cou r se (one CCU is 
a p proximat e ly e qual to one/tenth CCU of ap p roved 



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PROPOSED RULES 



course wo r k>. classroom training. 

(1 1) "Crack and crevice application" means an (24^ 

application of pesticide made directly into a crack 
or void area with equipment capable of delivering 
the pesticide to the target area. 

t-H-> (12) "Deficient soil sample" shall mean any soil t?^ 

sample which, when analyzed, is found to contain 
less than 25 p e rcent p ercent, expressed in parts per (53) 

million (ppm). of the termiticide applied by a 
licensee which would be found if the termiticide 
had been applied at the lowest concentration and 
dosage recommended by the labeling. t^+> 

tVir) (13) "Department" means the Depanment of 
Agriculture and Consumer Services of the State of 
North Carolina. 

fi^ (14) "Disciplinary action" means any action taken 

by the Committee as provided under the provisions (55) 

ofG.S. 106-65.28. 

(W) ( 15) "Division" means the Structural Pest Control 
Division of the Department of Agriculture and 
Consumer Services of the State of North Carolina. (2^ 

f^5) (16) Enclosed space" means any structure by 
whatever name known, including household 
structures, commercial buildings, warehouses, (2?) 

docks, vacant structures, and places where people 
congregate, such as hospitals, schools, churches, 
and others; railroad cars, trucks, ships, aircraft, 
and common carriers. It shall also mean vaults, 
tanks, chambers, and special rooms designed for (28) 

use, being used, or intended to be used for 
fumigation operations. (30) 

t+6) ( 17) "Enforcement agency" means the Structural 
Pest Control Division of the Department of 
Agriculture and Consumer Services of the State of 
North Carolina. 

(+T^ (18) "EPA" means the Environmental Protection 
Agency of the United States Government. 

t+8) (19) "EPA registration number" means the number (29) 

assigned to a pesticide label by EPA. 

(+9) (20) "Flammable pesticidal fog" means the fog 
dispelled into space and produced: 

(a) from oil solutions of pesticides finely 
atomized by a blast of heated air or e.\haust 
gases from a gasoline engine, or from 
mi.xtures of water and pesticidal oil solutions (3^ 
passed through a combustion chamber, the 

water being converted to steam, which exerts 
a shearing action, breaking up the pesticidal 
oil into small droplets (thermal fog); or 

(b) from oil solutions of pesticides which are t^ 
forced through very narrow space by 
centrifugal force and atomized as they are 

thrown off into the air (mechanical or cold 

fogs). (32) 

(2^ (21) "Fog or fogging" means micron sized particles 

of pesticide(s) dispersed by means of a thermal 

generator, or centrifugal fogger or a pressurized 



aerosol pesticide. 

(22) "Fumigation" means the use of fumigants 
within an enclosed space, or in, or under a 
structure, in concentrations which may be 
hazardous to man. 

(23) "Fumigation crew" or "crew" means personnel 
performing the fumigation operation. 

(24) "Fumigation operation" means all details prior 
to application of fumigant(s), the application of 
fumigant(s), fumigation period, and post 
fumigation details as outlined in these Rules. 

(25) "Fumigation period" means the period of time 
from application of fumigant(s) until ventilation of 
the fumigated structure(s) is completed, and the 
structure or structures are declared safe for 
occupancy for human beings or domestic animals. 

(26) "Fumigator" means a person licensed under 
the provisions of G.S. 106-65. 25(a)(3) or certified 
under the provisions of G.S. 106-65. 25(e)(1) to 
engage in or supervise fumigation operations. 

(27) "Gas-retaining cover" means a cover which 
will confine fumigant(s) to the space(s) intended to 
be fumigated. 

(28) "General fumigation" means the application of 
fumigant(s) to one or more rooms and their 
contents in a structure, at the desired concentration 
and for the necessary length of time to control 
rodents, insects, or other pests. 

(29) "Household" means any structure and its 
contents which are used for man. 

"Household pest" means any undesirable vertebrate 
or invertebrate organism, other than wood- 
destroving organisms, occurring in a structure or 
the surrounding areas thereof, including but not 
limited to insects and other arthropods, commensal 
rodents, and birds which have been declared pests 
under G.S. 143-444. 

(31) "Household pest control" means that phase of 
structural pest control other than the control of 
wood-destroying organisms and fumigation and 
shall include the application of remedial measures 
for the purpose of curbing, reducing, preventing, 
controlling, eradicating, and repelling household 
p ests and r od e nts, gests^ 

(32) "Inactive license" shall mean any structural 
pest control license held by an individual who has 
no employees and is not engaged in any structural 
pest control wo r k, work except as a certified 
applicator or registered technician. 

(33) "Infestation of a specific organism" means 
evidence of past or present activity by that 
organism, visible in, on, or under a structure, or in 
or on debris under the structure. 

(34) "Inspection for a specific wood-destroying 
organism" means the careful visual examination of 
all accessible areas of a building and the sounding 
of accessible structural members adjacent to slab 



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PROPOSED RULES 



areas, chimneys and other areas particularly 
susceptible to attack by wood-destroving organisms (43) 

to determine the presence of and the damage by that 
specific wood-destroying organism. 

f33) (35) "Inspector" means any employee of the 
Structural Pest Control Division of the Departmem 
of Agriculture and Consumer Services of the State (44) 

of North Carolina. 

(34) "Jobs not meeting t he minimum r equiremen t s o f 

these Rules" means any job that is no t t r ea t ed in 
aceofdanc e with the minimum r equiremen t s as 
herein se t f or th. 

(35) (36) "Licensed structural pest control operation," 
or "pest control operation," or "operator," or 
"licensed operator" means any person licensed 

under the provisions of G.S. 106-65. 25(a) or (45) 

unlicensed who, for direct or indirect hire or 
compensation is engaged in the business of 
controlling, destroying, curbing, mitigating, 
preventing, repelling, offering advice on control (46) 

methods and procedures, inspecting and identifying 
infestations and populations of insects, rodents, 
fungi, and other pests within, under and on 
structures of any kind, or the nearby surrounding 
ground areas or where people may assemble or 
congregate including work defined under G.S. 
106-65.24(23). 

(36) (37) "Liquefied gas aerosol" means the spray (4?) 
produced by the extreme rapid volatilization of a 
compressed and liquefied gas, to which has been 

added a non-volatile oil solution containing a (48) 

pesticide. 
(3?) (38) "Non-commercial certified applicator" shall 

mean any certified applicator not employed by a (49) 

licensed individual. 
(3§) (39) "Open porch" means any porch without fill in 

which the distance from the bottom of the slab to (51) 

the top of the soil beneath the slab is greater than 

12 inches. 

(39) (40) "Residential structure" means any structure 
tiscd used, or suitable for use, as a pei ' manent 
dwelling such as a single- or multi-family home, 
house trailer, motor home, mobile home, a 
condominium or townhouse or an apar t men t . 
apartment or any other structure, or portion 
thereof, used as a dwelling. (50) 

(40) (41) "Secretary" means the Secretary to the North 
Carolina Structural Pest Control Committee. 

(4i) (42) "Service vehicle" means any vehicle used 
regularly to transport the licensee or cenified 
applicator or serviceman registered technician or (5i) 

other employee or their any equipment and or 
pesticides used in providing structural pest control 
services. 

(42) (43) "Slab-on-ground" means a concrete slab in 
which all or part of that concrete slab is resting on 
or is in direct contact with the ground immediately (54) 



beneath the slab. 

(44) "Solid masonry cap" means a continuous 
concrete or masonry barrier covering the entire top, 
width and length, of any wall, or any part of a 
wall, that provides support for the exterior or 
structural parts of a building. 

(45) "Space spray" means any p esticide pesticide. 
regardless of its particle size, which is applied to 
the atmosphere within an enclosed space in such a 
manner that dispersal of the pesticide particles is 
uncontrolled. Pesticidal fogs or aerosols, including 
those produced by thciiudl-deiusul — generat or s 
(fogging machin e s), centrifugal or thermal fogging 
equipment or pressurized aerosol pesticides, shall 
be considered space sprays. 

(46) "Spot fumigation" means the application of a 
fumigant to a localized space or harborage within, 
on, under, outside of, or adjacent to, a structure for 
local household pest or rodent control. 

(47) "Spot surface residual spray" means the 
application of pesticidal spray directly to a surface 
and only in specific areas where necessary and in 
such a manner that the pesticidal material will 
largely adhere to the surface where applied and will 
remain toxic to household pests or rodents or other 
pests for which applied for an extended period of 
time. 

(48) "Structure" means all parts of a building, 
whether vacant or occupied, in all stages of 
construction. 

(49) "Structural pests" means all pests that occur in 
any type of structure of man and all pests associated 
with the immediate environs of such structures. 

(50) "Sub-slab fumigation" means the application 
of a fumigant below or underneath a concrete slab 
and is considered spot fumigation. 
"Supervision", as used in Rule .0325 of this 
Chapter, shall mean the oversight by the licensee of 
the structural pest control activities performed 
under that license. Such oversight may be in 
person by the licensee or through instructions, 
verbal, written or otherwise, to persons performing 
such activities. Instructions may be disseminated to 
such persons either in person or through persons 
emploved by the licensee for that purpose. 

(52) "Telephone answering service location" means 
any location used for the sole purpose of receiving 
telephone m e ssag e s, messages including locations 
which utilize call forwarding or other electronic 
answering or messaging technology. 

(53) "Termiticide(s)" (as used in Rttk — .0503, 
Subterranean Termite Cont ro l, and Rul e .0505, 
Subte r ran e an — Termite — P r even t ion) these Rules) 
means those pesticides specified in Rule .0502, 
.0502 of this Chapter. Pesticides for Subterranean 
Termite Prevention and/or Control. 
"Termiticide barrier" shall mean an area of soil 



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January 15, 1998 



1236 



PROPOSED RULES 



treated with an approved termiticide. which, when 
analyzed, is not deficient in termiticide. 
f52) (55) "To use any pesticide in a manner inconsistent 
with its labeling" means to use any pesticide in a 
manner not permitted by the labeling. Provided 
that, the term shall not include; 

(a) applying a pesticide at any dosage, 
concentration or frequency less than that 
specified on the lab e ling : labeling unless the 
labeling specifically prohibits deviation from 
the specified dosage, concentration, or 
frequency: 

(b) applying a pesticide against any target pest 
not specified on the labeling if the 
application is to the site specified on the 
labeling, unless the EPA has required that 
the labeling specifically state that the 
pesticide may be used only for the pests 
specified on the labeling: 

(c) employing any method of application not 
prohibited by the labeling, labeling unless 
the labeling specifically states that the 
product may be applied only by the methods 
specified bv the labeling. 

(53) (56) "Type of treatment" means the method used to 
apply a pesticide formulation to a specific location. 
location, including but not limited to: space spray, 
crack and crevice, complete surface residual, spot 
surface residual, bait placement or fog. 

(54) (57) "Unauthorized personnel" means any 
individual or individuals not given specific 
authorization by the licensee or certified applicator 
to enter areas to which access is restricted by these 
regulations. 

(55) (58) "Under direct supervision of" means the act or 
process whereby application of a pesticide is made 
by a competent person acting under the instructions 
and control of a licensee or certified applicator who 
is responsible for the action of that person and who 
is available if and when needed, even though such 
licensee or certified applicator is not physically 
present at the time and place the pesticide is 
applied. 

(56) (59) "Waiver" means a standard form prescribed by 
the Committee which will, when completed 
correctly, permit the licensee to deviate from or 
omit one or more of the minimum treatment 
methods and procedures for structural pests which 
are set forth in the Committee rules, definitions and 
requirements. 

(5?) (60) "Wood-destroying insect report" means any 
written statement or certificate issued, by an 
operator or his authorized agent, regarding the 
presence or absence of wood-destroying insects or 
their damage in a structure. 

(58) (61) "Wood-destroying organism" is an organism 
such as a termite, beetle, other insect, or funaus 



which may invade, inhabit, devour, or destroy 
wood or wood products and other cellulose material 
found in, on, under, in contact with, and around 
structures. 
(59) (62) "Wood-destroying organism report" means any 
written statement or certificate issued, by an 
operator or his authorized agent, regarding the 
presence or absence of wood-destroying organisms 
or their damage in a structure. 

Authority G.S. 106-65.29. 

SECTION .0300 - LICENSEsJG AND CERTIHCATION 

.0302 APPLICATION FOR LICENSES AND CARDS: 
EXAMINATION 

(a) Application for licenses under the provisions of G.S. 
106-65.26(3) and (c): 

(1) Application for examination shall be on a regular 
form prescribed by the Division. All examinations 
shall be maintained and administered by the 
Committee secretary. The Committee may review 
the examinations and make recommendations 
regarding changes in same. 

(2) Upon approval of the application for examination, 
the Committee secretary shall notify the applicant 
of said approval and provide the necessary form(s) 
for the applicant to pre-register for the examination 
as required in Paragraph (c) of this Rule. 

(3) Applications to take the examination shall be either 
typed or printed in ink and sworn to before a notary 
public or some other official authorized by law to 
administer oaths. 

(4) A clear full-face, head, and shoulder photograph of 
the applicant, taken within the preceding 12 months 
of the date of application, and not less than two and 
one-half inches square, shall be attached to the 
application. 

(5) All applications to take the examination shall be 
retained by the office of the Committee secretary. 
All documents filed in support of an application 
shall be kept by the office of the Committee 
secretary: provided, however, that the Committee 
may at its discretion permit such documents to be 
withdrawn upon substitution of a true copy. All 
examinations shall remain the property of the 
Coinmittee. 

(6) An applicant who fails to pass the license 
examination within 12 months of the approval of 
his application may be required to provide current 
information concerning his qualifications to take 
the examination to ensure that the applicant is still 
qualified to take the examination. 

(6) (21 An applicant who gives or receives 
unauthorized assistance during an examination shall 
be dismissed from the examination and his 
markings or results shall be voided and said 



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PROPOSED RULES 



applicant's examination fee sliall be forfeited. Such 
applicant shall not be permitted to take a 
re-examination for a period of six months from the 
date of the examination. 
(?) £8) No person shall be admitted to the examination 
room except members of the Committee, the 
attorney for the Committee, the examining 
persoimel, employees of the Structural Pest Control 
Division, and the applicants for licenses. 

(8) £91 Any applicant making a score of 70 percent or 
more on any license examination(s) shall be issued 
a license in that phase(s) of structural pest control 
after making proper application therefor. 

(9) (10) The applicant shall furnish such information as 
the Committee may require to establish that said 
applicant possesses qualifications as specified in 
G.S. 106-65.26 of the act for the particular 
license(s) which he seeks. The Committee, or its 
authorized representatives, may make such 
investigations as it deems necessary with respect to 
the applicant's qualifications. 

^iOi (in All applicants passing the examination(s) for 
licenses shall apply for said licenses within six 
months from the date on which the examinations 
were passed. If such applicants fail to make 
application for said licenses, within the specified 
period, such applicants shall be required to take and 
satisfactorily pass re-examinations covering phases 
of structural pest control work for which licenses 
were applied before said licenses are issued. 

fH) (12) If an applicant [wi t hin — 66 — days — after 
no t ification t ha t he has failed an e xamina t i o n] 
reques t s t o for a license fails an examination, he or 
she may review the e xamina t i o n(5), examination at 
the Division shall allow such r eview du r ing t he 
e arlies t p ossible r egular next regularly scheduled 
review session. 

(b) Application for certified applicator's identification card 
under the provisions of G.S. 106-65. 26(a) and (b): 

(1) Applications filed pursuant to G.S. 106-65. 26(a) 
and (b) shall be on a regular form prescribed by the 
Division. 

(2) An applicant for a certified applicator's 
identification card in any phase of structural pest 
control shall furnish such information as the 
Committee may require to establish that said 
applicant possesses qualifications as specified in 
G.S. 106-65.26 of the act for the particular 
certified applicator's identification card which he 
seeks. The Committee or its authorized 
representatives may make such investigations as it 
deems necessary with respect to the applicant's 
qualifications. 

(3) All applications for certified applicator's 
identification cards under the provisions of G.S. 
106-65. 26(a) and (b) shall be retained by the office 
of the Committee secretary. All documents filed in 



support of an application shall be kept by the office 
of the Committee secretary; provided, however, 
that the Committee may at its discretion permit 
such documents to be withdrawn upon substitution 
of a true copy. All examinations shall remain the 
property of the Committee. 

(4) Any applicant making a score of 70 percent or 
more on the core certification examination and on 
any certified applicator's examination(s) shall be 
issued a certified applicator's identification card in 
that phase of structural pest control after making 
proper application therefor. 

(5) All applicants passing the examination(s) for 
certified applicator's identification cards shall apply 
for said cards within six months from the date on 
which the examinations were passed. If such 
applicants fail to make application for said certified 
applicator's identification cards within the specified 
period, such applicants shall be required to take and 
satisfactorily pass re-examinations covering phases 
of structural pest control work for which certified 
applicator's identification cards were applied before 
said cards are issued. 

(6) If an applicant fails to obtain a certified applicator's 
identification card within 12 months of passing the 
core examination the applicant must take and pass a 
re-examination before being eligible for the card. 

(6) £7J Upon receipt of the application for examination, 
the Committee secretary shall provide the necessary 
forms for the applicant to pre-register for the 
examination as required in Paragraph (c) of this 
Rule. 

(8) If an applicant for a certified applicator's card fails 
an examination, he or she may review the 
examination at the next regularly scheduled review 
session. 

ffj £9} Subparagraphs (a)(2), (3)t (5), (6) £7} and f?) 
(8) of this Rule shall also apply to all applicants for 
certified applicator's identification cards. 
(10) Upon approval by the Committee, completion of 
the Registered Technician School shall be a 
prerequisite for the certification examination. 

(c) Pre-registration for license and certified applicator 
examination applicants: 

(1) All applicants for the license and/or certified 
applicator's examination(s) shall pre-register with 
the Committee secretary for said examination(s) no 
less than 10 days prior to the date of the 
examination. 

(2) Applicants who fail to pre-register shall not be 
permitted to take the examination. 

(3) Pre-registration shall include a properly completed 
application for examination. 

(d) Frequency of examination by license applicant limited: 
(1) An applicant who initially fails to pass the license 

examination may retake the examination at any 
subsequent regularly scheduled examination. 



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1238 



PROPOSED RULES 



(2) An applicant who fails to pass the second license 
examination shall wait a minimum of three 
examinations one examination between each 
subsequent examination: except that, in the event 
of a death of a licensee the applicant intending to 
succeed the deceased licensee may take the 
examination a third time prior to the first three 
examination waiting period. 

(3) No applicant shall be permitted to take the 
examination more than six times per year nor more 
than two times in consecutive months, except as 
provided for in Subparagraph (d)(2) of this Rule. 

Authorities. 106-65.29. 

.0303 DATES OF EXAMESIATION AND 
EXAMINATION REVIEW 

(a) Examinations for all phases of structural pest control 
shall be given the fi r st Monday of each month, provided. 
h o weve r , tha t date is not a national o r state holiday. — If the 
fi r s t Monday of any mon t h is a national o r s t ate holiday, said 
e xamina t ions shall be giv e n th e second Monday of that 
mon t h, monthly on a regular schedule determined by the 
Division. 

(b) The Division shall publish the date and location of 
each exam at least 30 days in advance of the examination. 

(c) Examination reviews shall be scheduled each month by 
the Division on a fixed schedule. 

Authority G.S. 106-65.29. 

.0306 MAILING OF RENEWAL FORMS 

On or before May 1 of each year the Division shall forward 
renewal forms to all holders of licenses and identification 
cards for their use in applying for renewal of said licenses, 
certified applicator's identification cards, and/or registered 
technician's identification cards. Mailing of t hese f o iius shall 
b e th e only notice fo r re newal. 

Authority- G.S. 106-65.29. 

.0308 DISPLAY OF CERTIHED APPLICATOR'S 
IDENTinCATION CARD 

A certified applicator's identification card shall be provided 
annually to each cenified applicator at the time of the renewal 
of his certified applicator's identification card. If a certified 
applicator is employed by a licensee, his certified applicator's 
identification card shall bear his employer's license number 
and phase(s), and expire when his employer's license expires. 
Each such cenified applicator's identification card shall bear 
only one license number, one company name, and not more 
than three license phases. The certified applicator's 
identification card shall be carried on the person of the 
certified applicator at all times when performing any phase of 
structural pest control work. A certified applicator's 
identification card shall be displayed upon demand to an 
inspector, the committee or its authorized representative, or 



the person for whom any phase of structural pest control 
wo r k, work is being performed. 

Authority G.S. 106-65.29. 

.0309 RE-CERTIFICATION 

(a) All ce r tified a pp licato r 's iden t ifica t ion cards shall 
expire on Jun e 30 of each year and shall be r enewed on an 
annual basis. Certified applicators and licensees shall be 
certified for a five year period. At the end of said five year 
period, a certified applicator, applicator or licensee, at his 
discretion, may be re-certified for another five year period by 
choosing one of the following options: 

(1) re-examination withou t — fuiiual — t r aining, taken 
between January f, prior to the expiration of the 
five-year recertification period, and June 30: 

(2) for recertification prior to July J^ 2002: earning 
Continuing Certification Units of formal training 
approved by the committee and received by the 
certified applicator during the five years 
immediately preceding the expiration date of his 
certification. The number of CCUs required shall 
be as follows; 

(A) recertification in any one phase: 5 CCUs 
total, 2 of which must be solely applicable to 
the phase in which recertification is desired; 

(B) recertification in any two phases: 7 CCUs 
total, 2 of which must be solely applicable to 
the first phase and 2 solely applicable to the 
second phase in which recertification is 
desired; 

(C) recertification in all three phases: 9 CCUs 
total, 2 of which must be solely applicable to 
the first phase, 2 solely applicable to the 
second phase, and 2 solely applicable to the 
third phase in which recertification is 
desired, desired; 

(D) licensees and non-commercial certified 
applicators must earn at least one of the 
required continuing certification units 
established in Rule .Q30 9 (a)(2) Subparagraph 
(a)(2) of this Rule in each of three years of 
the five year recertification period, period; 

(E) non-lic e ns e d commercial certified applicators 
must earn at least one of the required 
continuing certification units established in 
Rule .030 9 (a)(2) Subparagraph (a)(2) of this 
Rule in at least two years of the five year 
recertification pe riod, period; 

(F) continuing certification units shall not be 
carried forward beyond the five year 
recertification p e r iod, period; 



(3) for recertitication after Jul; 



2002 



earning 



Continuing Cenification Units during the five years 
immediately preceding the expiration date of his 
certification. The number of CCUs required shall 
be as follows: 



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PROPOSED RULES 



(A) recenificaiion in any one phase: 10 CCUs 
total, five of which must be solely applicable 
to the phase in which recenification is 
desired: 

(B) recenification in ajiy two phases: 15 CCUs 
total, five of which must be solely applicable 
to the first phase and five solely applicable to 
the second phase in which recertification is 
desired: 

(C) recertification in all three phases: 20 CCUs 
total, five of which must be solely applicable 
to the first phase, five solely applicable to 
the second phase, and five solely applicable 
to the third phase in which recertification is 
desired: 

(D) licensees and non-commercial certified 
applicators must earn at lease one of the 
required continuing certification units 
established in Subparagraph (a)(3) of this 
Rule in at least four years of the five year 
recertification period: 

(E) commercial certified applicators must earn at 
least one of the required continuing 
certification units established in 
Subparagraph (a)(3) of this Rule in at least 
three years of the five year recertification 
period: 

(F) continuing cenification units shall not be 
carried forward beyond the five year 
recertification period. 

ftr) — Licensees or cer t ifi e d a pp licators r equired to be 
r ece rt ified pr io r to June 30. 1 99 1 shall no t be subj e c t to Rule 
.030 9 (a)(2)tD) o r (C) un t il their first complete recertifi c ati o n 
inte r val the r eafte r . 

tc) (bi Licensees holding an inactive license shall be 
subject to the requirements of this Rule. 

Authority G.S. 106-65.29. 

.0312 INFORMATION ON CERTIFIED 

APPLICATOR'S IDENTIFICATION CARDS 

(a) A certified applicator's identification card shall 
contain, but not be limited to, the following information: 

(1) name of certified applicator; 

(2) home address of certified applicator; 

(3) certification number and phase(s) in which 
certified; 

(4) employer and employer's address; 

(5) employer's license number and phase(s) if 
applicable; 

(6) age, weight, height, color of hair and eyes of 
applicator; 

(7) job classification of card holder; 

(8) issuance date, expiration date, and license year 
covered by card. 

(b) If a certified applicator is employed by a licensee, his 
certified applicator's identification card shall bear the same 



license number and license phasc(5) as that of his employ e r . 
employer and the certification phases held by his employer in 
which the applicator has become certified. Each certified 
applicator's card shall bear only one license number, one 
company name, and not more than three license certification 
phases. 

Authority G.S. 106-65.29. 

.0313 REGISTERED TECHNICIAN'S 

IDENTIFICATION CARDS/TRAINING 
MATERIALS 

(a) A registered technician's identification card shall 
contain, but not be limited to, the following information: 

(1) name of registrant; 

(2) name of licensee or employer; 

(3) name of licensee's company; 

(4) address of licensee's company; 

(5) license number and phase(s) of licensee; 

(6) age, weight, height, color of hair and eyes of 
registrant; 

(7) job classification of card holder; 

(8) issuance date, expiration date and license year 
covered by card. 

(b) The registered technician's identification card and the 
license of the employer of the card holder shall bear the same 
license number and license phase(s). Each registered 
technician's identification card shall bear only one license 
number, one company name, and not more than three license 
phases. 

(c) A licensee or non-commercial certified applicator 
applying for the issuance or renewal of a registered 
technician's identification card for his employee shall certify 
to the Division that the employee has completed employee 
training approved by the Committee in structural pest control 
work. 

(d) In t he ev e n t t he C o mmi t tee a p proves em p l o yee training 
ma t e r ials produced by t he Division, such ma t erials shall b e 
pu r chas e d — for — each — hom e — office — and — by — at — least — one 
non-commercial ce rt ified a pp lica tor a t each business location; 
p r ovided, however, licensees p e r forming wo r k under t he 
s tr uc t u r al p es t cont ro l lic e ns e of anothe r and non-comme r cial 
ce r tified — applicators — who — arc — not — cur re n t ly — engaged — in 
s tr uc t u r al p es t cont r ol shall no t be re qui re d t o purchase the 

training — ma t erials. The — following — tr aining — material — k 

a ppr oved by the Co i nmi t tce : "Safe Use of Pes t icides f or 
S tr uc t ural Pes t s" video a t a cos t of fifty dollars ($50. (X)) p e r 
vide o . All individuals who make application for the issuance, 
not renewal . of Registered Technicians Identification Cards, 
after July f, 1998 shall complete the following approved 
training or its equivalent, as approved by the Division, before 
becoming eligible for the identification card: 

(1) Introductory Training: 

(A) Introductory training shall include 
completion of the workbook. Introductory 
Training for Registered Technicians and: 

(B) A minimum of 24 hours of on-the-job 



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1240 



PROPOSED RULES 



training in applicable phases of structural 
pest control by the licensee, certified 
applicator, or registered technician having at 
least two years of experience; 
(C) Introductory training shall be completed 
before the employee is permitted to mix or 
apply pesticides without the on-site 
supervision of a registered technician, 
certified applicator or licensee. 

(2) On-the-job training involving the methods and 
materials the employee will use in the day-to-day 
performance of his duties. 

(3) The North Carolina Structural Pest Control 
Registered Technician School. A fee of twenty-five 
dollars ($25.00) shall be charged for each employee 
attending the Registered Technician School. 

(e) Training materials and records shall be made available 
for inspection during regular business hours upon request by 
the Division. Division and shall be retained two years beyond 
the last date of tiie individual's employment. 

Authority G.S. 106-65.29. 

.0323 DISPLAY OF LICENSE AT PLACE(S) OF 
BUSINESS 

All structural pest control licenses shall be kept at the 
business address on the license. In t he cas e of a non- re sid e nt 
license holde r , the lic e ns e shall be ke p t at the office shown on 
license c er tifica t e, unless autho r iza t ion is obtained f r om the 
Division t o kee p t he license at t he add re ss of th e r e sid e n t 
agen t . All licenses shall be subject to inspection by the 
Division anytime during regular business hours. 

Authority G.S. 106-65.29. 

.0325 DUTY OF LICENSE HOLDER TO 
CONTROL ACTIVITIES 

(a) The licensee shall be actively and personally engaged 
in the supervision of the structural pest control activities of 
the office to which his/her license is assigned. 

ta) £bl If any office or individual employee of a license 
holder is not within 75 miles of the licensee's residence, by 
the nearest public road, the licensee shall submit to the 
committee, in writing, information to show that he is, in fact, 
controlling, directing and supervising the structural pest 
control activities of said office or employee. In the event 
iiifoiuid t ion submi tte d to the committee by a lic e ns e holde r is 
insufficien t fo r th e commit t ee to determine that said holde r is, 
in fac t , con t rolling, di r ecting and su p e r . ' ising the st r uctu r al 
pest — control — activi t ies of his otTicc o r em p loyees, — the 
committee shall requi r e said holde r to a ppe a r befo r e i t and set 
fo rt h, in de t ail, infoimaiion to show that he is. in fact, in 
cha r ge of the stmctu r al pest cont r ol activi t ies of his office o r 
employees. 

(c) In the event information submitted to the committee by 
a license holder is insufficient for the c ommittee to determine 
that said holder is^ in fact, controlling, directing and 



supervising the structural pest control activities of his office 
or employees, the committee shall require said holder to 
appear before it and set fonh. in detail, information to show 
that he is^ in fact, in charge of tlie structural pest control 
activities of hjs office or employees. 

(d) The information required in Paragraph (b) of this Rule 
shall be submitted w ithin 10 days of employment of any 
individual to which Paragraph (b> of tins Rule applies and at 
the time the license or identification card is issued, reissued 
or renewed. 

fbt {ej It shall be a violation of the rules and regulations 
of the committee for any license holder to fail to adequately 
control, direct and supervise the structural pest control 
activities of his office or employees. 

Authority G.S. 106-65.29. 

.0328 RECORDS: PESTICIDES AND 

APPLICATION EQUIPMENT USED 

(a) All required structural pest control records and 
pesticides and application equipment used by the licensee or 
non-commercial certified applicator shall be maintained at the 
office location to which the license or certified applicator's 
card is issu e d unless prio r a ppr oval fo r ano t her loca t ion has 
been g r anted by the Division. — All such r eco r ds, pesticides 
and equi p men t shall be made available f or ins p ec t ion during 
re gular busin e ss hou r s u p on r equest by the Division, issued. 

(b) Notwithstanding the requirements of Paragraph (a) of 
this Rule, a licensee may request permission, armually. from 
the Division, to maintain records, pesticides and application 
equipment in a location other than the office location 
specified in Paragraph (a) of tfiis Rule. In determining 
whether or not to grant such permission, the Division shall 
ensure that its ability to regulate the licensee will not be 
adversely affected by granting the request. 

(c) All such records, pesticides and equipment shall be 
made available for inspection during regular business hours 
upon request by the Division. 

Authority G.S. 106-65.29. 

SECTION .0400 - PUBLIC SAFETY 

.0401 PUBLIC SAFETY: STORAGE AND 
HANDLING OF CONTAINERS 

(a) AH pesticides shall be kept securely, in leakproof 
containers and labeled as specified in Rule .0402 of this 
Section. 

(b) In no case shall containers of pesticide(s) be left where 
pets, domestic animals, children or other unauthorized 
persons might remove or consume the contents. 

(c) Food containers shall not be used as pesticide 
containers. 

(d) When pesticides are carried stored or transported in or 
on a vehicle, a suitable storage space shall be provided 
thereon. Such space shall be constructed so as to maintain all 
pesticide containers in a manner which will prevent spills and 



1241 



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January 15, 1998 



12:14 



PROPOSED RULES 



shall be locked when the vehicle is unattended. 
Authority G.S. 106-65.29. 

.0402 LABELING PESTICIDE CONTAINERS 

(a) All pesticide concentrates and poison baits stored in 
containers other than original shall be prominently labeled to 
give the following information: 

(1) manufacturer's complete brand name of product; 

(2) percentage of each active ingredient; 

(3) EPA registration number; 

(4) signal word (as it appears on the pesticide label); 

(5) use classification, if classified, (as it appears on the 
label). 

(b) All pesticide containers, except those described in fttric 
.0402(a) Paragraph (a) of this Rule and application equipment 
of 15 gallon capacity or less, shall be prominently labeled to 
give the following information: 

(1) manufacturer's complete brand name of product; 

(2) the word "dilute" if diluted; 

(3) if diluted, kind of diluent (water, oil, dust, etc.); 

(4) signal word (as it appears on the pesticide label). 

(c) Pesticide containers labeled in accordance with U.S. 
DOT HM-181 shall be considered to be in compliance with 
this Rule, provided that the licensee or certified applicator 
can demonstrate that the container labelin g is in compliance 
with HM-181. 

Authority G.S. 106-65.29. 

.0403 FIRST AID 

First aid equipment and first aid procedures, approved by 
the committee, or EPA or Federal Occupational Safety and 
Health Administration, shall be placed in all service vehicles 
in whi c h pes t icides ai - c s t o r ed, carried, or t ranspor t ed and in 
all other areas where pesticides are stored or handled. 

Authority G.S. 106-65.29. 

.0404 NOTinCATION 

In cas e of p oisoning, the The licensee or his au t ho r ized 
ag e n t or the certified applicator shall, u po n d e mand of th e 
commi t tee o r enfo r cemen t agency, and their employees shall 
reveal u po n ve r bal — o r w r itt e n — re qu e st, the name(s) of 
p e5 t icide(s). name, active ingredient(s), and — foniiulation 
t herein — as — us e d, — whc t hci — it — be — s o lid, — liquid, — or — gasr 
formulation, and EPA Registration No. of any pesticide 
applied on aiiy property, on request to: 



(1) 



(2) 

(3) 
(4) 



the client or his authorized agent, the property 

owner or occupants, any other individual affected 

by the pesticide application. 

a p hysician, physician or other emergency medical 

personnel. 

the committee, or 

the Division. 



Authority- G.S. 106-65.29. 



.0406 SPILL CONTROL 

Licensees and certified applicators shall maintain adequate 
spill control materials, equipment, or a combination thereof, 
based upon the type and quantity of pesticides present, at all 
locations used to store pesticides and on all service vehicles 
used to store or transport pesticides. 

Authority G.S. 106-65.29. 

SECTION .0500 - WOOD-DESTROYEVG ORGANISMS 

.0501 WOOD-DESTROYING INSECTS: 

EXCLUDING SUBTERRANEAN TERMITES 

(a) Determining Active Infestations of Wood-Destroying 
Beetles. The licensee, certified applicator, and/or his 
representative(s) making the inspection for wood-destroying 
beetles shall be responsible for determining the presence or 
absence of an active infestation(s). All proposals for the 
treatment of wood-destroying insects under Rule .0501(a) 
Paragraphs (a) and (b) of these Rules and Regula t ions this 
Rule shall be in writing and contain the name(s) of the 
wood-destroying insects(s) to be controlled, that part of the 
structure to be covered under the agreement (entire structure, 
understructure only, entire interior of the garage, etc.), and 
the basis on which the licensee, certified applicator, or his 
representative(s) determined the infestation to be active or 
inactive as set forth herein below: 

(1) Powder Post Beetle(s) (Anobiidae, Bostrichidae and 
Lyctidae) 

(A) The presence of frass, the color of fresh cut 
wood, will be acceptable as evidence of an 
active infestation of powder-post beetles. 

(B) The presence of holes alone or holes and dull 
colored frass will not be acceptable evidence 
of an active infestation of powder-post 
beetles except in such cases where live larvae 
or pupae are found in wood members. 
Where holes alone are found in wood 
members, this should encourage the licensee, 
certified applicator, or his representative(s) 
to check the property during the optimum 
time for f r ass pr oduc t ion by larvae-May 
adult emergence-May 1 to August 31. It 
should be pointed out that Anobiid beetles 
usually confine themselves to softwoods such 
as pine while Lyctid beetles confine 
themselves to hardwoods such as oak or 
pecan. 

(C) If a licensee performs a guaranteed or 
warranted treatment for powder post beetles, 
the period of initial liability with regards to 
active infestation shall be 18 months from 
the original treatment date. 

(D) If an active infestation of powder-post 
beetles is found by the Division in any 
structure treated for said beetles, during or 



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January 15, 1998 



1242 



PROPOSED RULES 



after the first complete adult beetle 

emergence period within 18 months of the 

treatment date, the licensee or certified 

applicator responsible for said treatment shall 

retreat the infested areas of the structure 

within 30 days of written notice from the 

Division. Retreatment shall be performed, 

upon request of the Division, in the presence 

of a structural pest control inspector. 

(2) Old House Borer (Hylotrupes bajulus). The 

presence of old house borer or oval exit holes with 

sawdust-like frass consisting of fine powder with 

tiny pellets in oval galleries in pine or other 

softwoods will be evidence of an active infestation 

of the old house borer. It should be pointed out 

that feeding larvae of the old house borer can be 

detected by sound; however, other long-homed 

borer and flatheaded borer larvae make similar 

sounds. Therefore, frass and insect characteristics 

should be used to confirm identity. 

(b) Identifying Other Wood-Destroying Insects. There are 
other species of wood-destroying insects which occur in 
structures. Before recommending treatment or selling a 
service for the prevention or control of wood-destroying 
insects, other than powder-post beetles or old house borer, 
the licensee, cenified applicator, and/or their 
representative(s) shall identify the wood-destroying insect(s) 
in question and inform the propeny owner, or his authorized 
representative of the identity and habits of the 
wood-destroying insect(s) in question. 

(c) Any re-application of pesticides under this Rule .0501 
shall be in accordance with the label of the pesticide used. 

(d) Pesticide applications for the prevention of wood- 
boring beetles may only be performed after informing the 
property owner or their authorized agent in writing of the 
biology and conditions supporting the infestation and survival 
of said insects. Such notice shall include an evaluation of the 
condition of the structure(s) to be treated and a statement as 
to whether or not such condition will support an infestation 
by wood-boring beetles. 

Authority G.S. 106-65.29. 

.0502 PESTICIDES FOR SUBTERRANEAN 
TERMITE CONTROL 

(a) Any Through December 31. 1998. any pesticide may be 
used for the prevention and/or control of subterranean 
termites provided that it bears an EPA-approved label for 
such use and the pesticide is applied according to the 
directions of its label. 

(b) Effective January 1^ 1999. only those products which 
bear an EPA-approved label for such use and for which the 
Committee has received the following information may be 
used for subterranean termite control: 

( 1) A statement from the pesticide registrant that the 
termiticide is intended, either for use: 
(A) as a supplement to or in combination with 



other treatment(s): or 
(B) primarily by itself, as the sole source of 

termite control: and 
(2) For termiticides intended to be used alone, a copy m 
of the efficacy data developed for and/or provided " 
to the EPA for registration of the pesticide. 

(c) Termiticides in tended for use as a supplement to or in 
combination with other termiticides may not be used alone 
without first disclosing the registrants' recommendations to 
the property owner or agent. 

(d) A list of termiticides for which information and/or data 
has been received may be obtained by writing the North 
Carolina Department of Agriculture and Consumer Services. 
Structural Pest Control Division. PO Box 27647. Raleigh. 
NC 2761 1 or by calling (919) 733-6100. 

Authority G.S. 106-65.29. 

.0503 SUBTERRANEAN TERMITE CONTROL: , 

BUILDINGS AFTER CONSTRUCTED 

(a) Basement or Crawl-Space Construction: 

(1) Access openings shall be provided to permit 
inspection of all basement and crawl-space areas of j 
a building and all open porches. 

(2) Clean up and remove all wood debris and cellulose 
material, such as wood, paper, cloth, etc., 
contacting soil in all crawl-space areas. This 
excludes shavings or other cellulose material too 
small to be raked with the tines of an ordinary a 
garden rake. Remove all visible stumps from all I 
crawl -space areas. Remove all visible form boards 

in contact with soil. 

(3) Remove all earth which is within 12 inches of the 
bottom edges of floor joists or within eight inches 
of the bottom edges of subsills or supporting 
girders, but not below footings of foundation walls. 
If foundation footings are less than 12 inches below 
the bottom edges of joists or subsills or supporting 
girders, a bank of soil 12 inches to 18 inches wide 
shall be left adjacent to footings for the purpose of 
support. Clearance shall be adequate to provide 
passage of a man person to all crawl-space areas of 
a building. 

(4) All visible termite tubes or tunnels on pillars, 
pilasters, foundation walls, chimneys, step 
buttresses, sills, pipes, and other structures below 
the sill line shall be removed. 

(5) Eliminate all wooden pans be t ween making contact 
with the building and soil, both outside and inside, 
except those which appear to be pressure treated: 

(A) No wood of any access opening shall be in 
contact with the soil. 

(B) Where wood parts such as door frames, 
partition walls, posts, stair carriages or other . 
wood parts can be reasonably ascertained to fl 
be making direct soil contact through ^ 
concrete or where there is evidence of 



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January 15, 1998 



12:14 



PROPOSED RULES 



termite activity or damage they shall be cut 
off above the ground or floor level, and the 
wood removed from the concrete; and the 
hole shall be filled with concrete or covered 
with a metal plate, after the point of contact 
has been treated with a termiticide. 

(C) Where wood parts such as vertical wood 
supports or other wood parts under a 
building or steps outside a building are not 
resting on solid masonry or concrete bases 
extending at least two inches above the soil 
surface or are in direct soil contact and such 
supports or steps are not removed, the 
supports and steps shall be cut off and set on (7) 
a solid masonry or concrete footing 
extending at least two inches above the 

ground after the point of contact has been 
treated with a termiticide. 

(D) When wood skirting and lattice work are 
suspended, there shall be at least a two-inch 
clearance between the top of the soil and the 
bottom edges of the wood skirting or lattice 
work. If the two-inch clearance is not 
acceptable to the property owner, it may be 
closed with solid masonry or concrete but a 
minimum clearance of one-fourth of one inch 
shall be provided between the masonry and 
wood. 

(E) Where wood fence posts are making contact 
with the soil and any part of a building and 
such posts are not removed, a minimum 
clearance of one-fourth of one inch shall be 
provided between the posts and the building (8) 
part; a continuous, non-corrosive, sheet 

metal barrier, extending two inches beyond 
each side of the post(s), may be substituted 
for the clearance. If the fence has wood 
railings, alteration(s) of the fence post 
against the building will not suffice. 

(F) Where houses or decks are built on pressure 
treated wood pilings, pillars or all-weather 
wood foundations, such pilings, pillars and 
wood foundation members, including wood 
step supports, shall not be subject to Rtric 
■0503(a)(5)(A), Parts (a)(5)(A). (B) or (€)? 
(C) of this Rule. 

(6) Drill Where evidence of either past or present 
subterranean termite infestation exists, drill and 
treat all voids in multiple masonry foundation and 
bearing walls and all voids created by their 
p lacement, placement at and a minimum distance of 
four feet in all directions from such evidence. (9) 

Porch foundation walls shall be drilled to a distance 
of three feet from the main foundation wall and the 
point of contact with any wooden members. 
(A) The distance between drill holes shall not 
exceed 16 lineal inches and holes shall be no 



more than 16 inches above the footing or 
immediately above the lowest soil level 
whichever is closest to the footing, 
tfr) — The d r illing o f voids in four inch thick 
hollow s t ructu r al block shall n ot be required 
unde r this Rule. 
i^ £B} Test drill the main foundation wall 
behind any porch or slab area to determine if 
the porch or slab is supported by a wall 
whose placement creates a void between 
itself and the main foundation wall. If test 
reveals that a void exist, drill and treat all 
voids therein as specified in this Rule. 
D r ill Where evidence of either past or present 
subterranean termite infestation exists, drill and 
treat all voids in all multiple masonry pillars, 
pilasters, chimneys, and step bu t tresses, buttresses 
associated or in contact with such evidence, and 
any void created by their placement: 

(A) The distance between drill holes shall not 
exceed 16 lineal inches and shall be no more 
than 16 inches above the footing or 
immediately above the lowest soil level, 
whichever is closest to the footing. 

(B) Drilling shall not be required if solid 
concrete masonry footings of pillars, 
pilasters, chimneys or step buttresses extend 
eight inches or more above top of soil 
surface. 

(€) Th e d r illing of v o ids in fou r inch thick 

hollow structu r al block shall no t be required 
unde r this Rule. 
Where concrete slabs over dirt-filled areas are at 
the level of, above the level of, or in contact with, 
wood foundation members treat dirt-filled areas 
with a termiticide as follows: 

(A) Drill vertically three-eighths of one inch or 
larger holes in the slab, no more than eight 
six inches from the building foundation, at 
no more than +6 12 inch intervals and treat 
soil below slab; slab from the bottom of the 
slab to the tog of the footing: or 

(B) Drill horizontally three-eighths of one inch 
or larger holes in the foundation wall of the 
concrete slab, no more than eight six inches 
from the building foundation, every 16 
vertical inches starting immediately below 
the bottom of the slab and rod treat all soil 
adjacent to building foundation from the 
bottom of the slab to the lowest outside 
grade. 

T r ea t Trench or trench and rod treat soil to 
establish a continuous termiticide barrier in the soil 
adjacent to, but not more than eight six inches 
from, all pillars, pilasters, chimneys, pressure 
treated wood supports and step buttresses; inside of 
foundation walls; outside of foundation walls; the 



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1244 



PROPOSED RULES 



outside of foundation walls of concrete slabs over 
dirt-filled areas and the entire perimeter of a slab 
foundation wall, wall from the top of the grade to 
the toj2 of the footing or to a minimum depth of 30 
inches, whichever is less. Where footings are 
exposed, treatment shall be performed adjacent to 
the footing but not below the bottom of the footing. 
The trench shall be no less than six inches in depth 
01 to the bottom of the footing, whichever is less. 
Where outside concrete slabs adjacent to the 
foundation prevent trenching of soil, drill 
three-eighths of one inch or larger holes, not more 
than +6 12 inches apart and within 9 six inches of 
the foundation wall, through slabs or through 
adjoining foundation wall, and rod treat soil below 
slabs, slabs as indicated above to establish a 
continuous termiticide barrier at ali known points 
of entr>'. The soil immediately around pipes and 
other utility conduits making contact with the 
structure, shall be treated. 

(10) Where stucco on wood or similar type mate r ials 
materials, including extruded or expanded rigid 
foam insulation or similar materials, extend to or 
below grade, trench soil to a depth below and under 
the edge of the stucco or similar type materials and 
treat soil to establish a continuous termiticide 
barrier in the soil. After the soil has been treated, a 
masonry barrier wall may be erected to hold back 
the soil from making direct contact with the stucco 
or similar type materials. Where outside slabs on 
grade adjacent to foundation prevent trenching of 
soil, drill three-eighths of one inch or larger holes 
through slabs within eigh t six inches of the 
foundation wall, or through adjoining foundation 
wall, not more than i^ \1 inches apart and rod treat 
soil below slabs. Where drain tile, french drains or 
other foundation drainage systems present a hazard 
of contamination outside the treatment zone, 
treatment shall be performed in a marmer that will 
not introduce termiticide into the drainage system. 

(11) Rule .0503(b) Paragraph (bi of this S e ction Rule 
shall be followed if applicable to basement or 
crawl-space construction. 

(b) Slab-on-Ground Construction: 

(1) Treat soil with to establish a continuous termiticide 
barrier in, under, and around, all traps and 
openings in the slab. 

(2) Drill venically three-eighths inch or larger holes, at 
all visible or known expansion and construction 
joints, cracks, and crevices in slab and around all 
utility conduits in the slab at no more than +6 12 
inch intervals and rod treat soil below slab, slab to 
establish a continuous termiticide barrier from the 
bottom of the slab to a depth of 30 inches or to the 
top of liie footing, whichever is less, at all known 
points of entry. Where wooden structural members 
are in contact with concrete or masonrv floors 



which have joints or cracks beneath the wooden 
structural members, including wall plates in utility 
or storage rooms adjoining the m.ain building, the 
concrete or masonry shall be drilled and treated in 
order to achieve treatment of the soil beneath them. 
As an exception, expansion and construction joints 
at the perimeter of the exterior wall may be rod 
treated by drilling through the foundation wall at 
no more than 16-inch 12-inch intervals directly 
below the bottom of the slab. 
(3) Rule .05Q3(a) Paragraph la] of this Sec t ion Rule 
shall also be followed. 

(c) Reapplication of Pesticide(s) to a Structure Previously 
Treated for Subterranean Termite Control: 

(1) A reapplication of termiticide shall be required if 
soil test by the Division reveals that the soil is 
deficient in the termiticide which was applied to the 
soil. 

(2) Any re-application of pesticides under this Rule 
.0503 shall be in accordance with the label of the 
pesticide used. 

(d) A licensee may enter into a written agreement for the 
control or prevention of subterranean termites in a building 
after it has been constructed without having to abide by Rul e s 
.0503(a) Paragraphs (a) and (b) of this Sec t ion Rule provided 
that: 

(1) The licensee has written proof, satisfactory to the 
committee, that he or his authorized agent, treated 
the entire building for subterranean termites at the 
time of its construction as required in Rule .0505 
or .0506 of this Section (or comparable regulations 
by the committee at the time of treatmen t ). 
treatment): and 

(2) A written agreement is issued in compliance with 
Rule .0605 of Sec t ion .0600. this Chapter. 

(e) Paragraphs (a) and (bj of this Rule shall not apply to 
subterranean termite treatment performed using termite bait(s) 
labeled for protection of the entire structure when the licensee 
provides a warranty for the control of subterranean termites 
on the entire structure. 

Auihoriiy G.S. 106-65.29. 

.0504 REPORTESG DAMAGE: INFESTATION: 
UNINSPECTED AREAS 

(a) When inspecting for wood-destroying insects or 
wood-decay organisms or both, all wood members of a 
structure which can be ascertained by visual inspection to be 
damaged shall be promptly brought to the attention of the 
property owner or his authorized agent and shall also be 
indicated in writing, in the contract or agreement, by the 
licensee or his authorized agent. 

(b) The licensee or his authorized agent, shall indicate in 
writing, in the contract or agreement, whether or not he is 
responsible for the replacement, repair, or re-enforcement of 
any or all of the wood members which were ascertained by 
visual inspection to be damaged. 



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PROPOSED RULES 



(c) Any visible evidence of infestation of wood-destroying 
organisms in, on, under, or in contact with, a structure shall 
be promptly brought to the attention of the property owner or 
his authorized agent and shall be specified, in writing, in the 
contract or agreement, by the licensee or his authorized agent. 

(d) The licensee or his authorized agent shall indicate and 
describe, in writing, on the contract or agreement, any area(s) 
of the building or crawl-space of the building which have not 
been inspected and give the reasons for not making such 
inspection(s). 

(c) Rul e .0504 shall not a pp ly to ins p ec t ions made 

pu r suan t to Rule .0002 of t hese Rules and Regula t ions. 

Authority G.S. 106-65.29. 

.0505 SUBTERRANEAN TERMITE 

PREVENTION/RES BLDGS UNDER CONST 

(a) All treatments performed pursuant to this Rule shall be 
performed at the label recommended rate and concentration 
only. 

fa) {b} Basement or Crawl -Space Construction 

(1) Establish a vertical barrier in the soil b^ trenching 
or trenching and rodding along inside of the main 
foundation wall; the entire perimeter of all multiple 
masonry chimney bases, pillars, pilasters, and 
piers; and both sides of partition or irmer walls 
with a termiticide from the top of the grade to the 
top of the foo t ing, footing or to a minimum depth 
of 30 inches, whichever is less. Where footings are 
exposed, treatment shall be performed adjacent to 
the footing but not below the bottom of the footing. 
Trench shall be no less than six inches in depth or 
to the t02 of the footing, whichever is less. Where 
drain tile, french drains or other foundation 
drainage systems present a hazard of contamination 
outside the treatment zone, treatment shall be 
performed in a manner that will not introduce 
termiticide into the drainage system. 

(2) After a building or structure has been completed 
and the excavation filled and leveled, so that the 
final grade has been reached along the outside of 
the main foundation wall, including any 
landscaping to be completed by the builder. 
establish a vertical barrier in the soil by trenching 
or trenching and rodding adjacent to the outside of 
the main foundation wall with a termiticide from 
the top of the grade to the top bottom of the 
foo t ing, acc or ding to the label; exce pt tha t , whe r e 
footing or, to a minimum depth of 30 inches, 
whichever is less. Where footings are exposed, 
treatment shall be performed adjacent to the footing 
and not below the bottom of tlie footing. Trench 
shall be no less than six inches in depth or to the 
bottom of tlie footing, whichever is less. Where 
drain tile, french drains or other foundation 
drainage systems present a hazard of contamination 
outside the treatment zone, treatment shall be 



performed in a manner that will not introduce 
termiticide into the drainage system. 

(3) Establish a horizontal termiticide barrier in the soil 
within three feet of the main foundation, under 
slabs, such as patios, walkways, driveways, 
terraces, gutters, etc., attached to the building. 
Treatment shall be performed before slab is poured, 
but after fill material or fill dirt has been spread. 

(4) Establish a horizontal termiticide barrier in the soil 
under the entire surface of floor slabs, such as 
basements, porches, entrance platforms, garages, 
carports, breezeways, sun rooms, etc. The 
treatment shall be performed before slab is poured 
but after fill material or fill dirt has been spread. 

(5) Establish a vertical termiticide barrier in the soil 
around all critical areas, such as expansion and 
construction joints and plumbing and utility 
conduits, at their point of penetration of the slab or 
floor or, for crawl space construction, at the point 
of contact with the soil. 

(6) If concrete slabs are poured prior to treatment, 
treatment of slabs shall be performed as required by 
fttric 2 NCAC 34 .0503(a) or (b): Except that; the 
buyer of the property and/or his authorized agent 
may release the licensee from further treatment of 
slab areas under this Rule provided such release is 
obtained in writing on the form prescribed by the 
Division. This form may be obtained by writing 
the North Carolina Department of Agricul t ure, 
Agriculture and Consumer Services. Structural Pest 
Control Division, P.O. Box 27647, Raleigh, NC 
2761 1 or by calling (919) 733-6100. 

tM £ci Slab-on-Ground Construction. All parts of fttric 
.0505 Paragraph (a) of this S e c t ion Rule shall be followed, if 
applicable, in treating slab-on-ground construction. 

(d) All treating requirements specified in this Rule shall be 
completed within 60 days following the completion of the 
structure, as described in Subparagraph (b)(2) of this Rule. 

Authority G.S. 106-65.29. 

.0506 MEM REQUIRE/SUBTERRANEAN TERMITE 
PREV/COMMERCIAL BLDGS UNDER 
CONST 

(a) All treatments performed pursuant to ttiis Rule .0506 
shall be performed at the label recommended rate and 
concentration only. 

(b) Minimum Treatment Requirements: 

(1) Establish a vertical barrier in the soil by trenching 
or trenching and rodding along inside of the main 
foundation wall; the entire perimeter of all multiple 
masonry chimney bases, pillars, pilasters, and 
piers; and both sides of partition or irmer walls 
with a termiticide from the top of the grade to the 
top bottom of the footing, footing or a minimum 
depth of 30 inches, whichever is less. Where 
footings are exposed, treatment shall be performed 



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1246 



PROPOSED RULES 



adiaceni to the footing but not below the bottom of 
the footing. Trench shall be no less than six inches 
in depth or to the bottom of the footing, whichever 
is less. Where drain tile, french drains or other 
foundation drainage systems present a hazard of 
contamination outside the treatment zone, treatment 
shall be performed in a manner that will not 
introduce termiiicide into the drainage system. 

(2) After a building or structure has been completed 
and the excavation filled and leveled, so that the 
final grade has been reached along the outside of 
the main foundation wall, including any 
landscaping to be completed by the builder. 
establish a vertical barrier in the soil adjacent to the 
outside of the main foundation wall by trenching or 
trenching and rodding with a termiticide from the 
top of the grade to the top of the footing, according 
t o t he label: excep t tha t , whe r e footing or to a 
minimum depth of 30 inches, whichever is less. 
Where footings are exposed, treatment shall be 
performed adjacent to the footing and not below the 
bottom of the footing. Trench shall be no less than 
six inches in depth or to the bottom of tlie footing, 
whichever is less. Where drain tile, french drains 
or other foundation drainage systems present a 
hazard of contamination outside the treatment zone, 
treatment shall be performed in a marmer that will 
not introduce termiticide into the drainage system. 

(3) Establish a horizontal termiticide barrier in the soil 
within three feet of the main foundation, under 
slabs, such as patios, walkwa\'s, driveways, 
terraces, gutters, etc. Treatment shall be performed 
before slab is poured, but after fill material or fill 
dirt has been spread. 

(4) Establish a vertical termiticide barrier in the soil 
around all critical areas, such as expansion and 
construction joints and plumbing and utility 
conduits, at their point of penetration of the slab of 
floor or, for crawl space construction, at the point 
of contact with the soil. 

(5) If concrete slabs are poured prior to treatment, 
treatment of slabs shall be performed as required by 
fttric I NCAC 34 .0503(a) or (b). 

Authority G.S. 106-65.29. 

.0507 APPLICATION EQUIPMENT 

Effective July L, 1998. all application equipment used to 
apply pesticides for wood-destroying organisms, other than 
compressed air sprayers of less than five gallon capacity 
shall: 

(1) have all hoses securely attached to the tank, pump 
and other equipment components: 

(2) be constructed so that the output pressure can be 
adjusted to meet the requirements of the pesticide 
being applied: and 

(3) except for in-line injection s\siems. be equipped 



with a functional bypass flow agitation device. 
Authority G.S. 106-65.29. 

.0508 WOOD-DECAY FUNGI 

(a) The following conditions shall be considered 
satisfactory evidence of and necessary' conditions for an active 
wood-decay fungus infestation: 

(1 ) Moisture content of the wood sufficient to support 
the growth of wood-decay fungus, as determined 
through the use of a moisture meter: and 

(2) The presence of mycelial growth or characteristic 
damage from wood-decay fungi. 

(b) A moisture content in the wooden members of a 
strucmre in excess of 20 percent of a dry weight basis shall be 
recognized as an indication that some steps should be taken to 
control the moisture level of the affected member(s). 

(c) Pesticide applications for the control or prevention of 
wood-decay fungi may only be performed after informing the 
property owner or their authorized agent in writing of the 
biology and conditions supporting the growth of wood-decay 
fungi. Such notice shall include an evaluation of the 
condition of the structure, including the moisture content of 
the wooden members to be treated as determined with a 
moisture meter, and a statement as to whether or not such 
condition(s) will support the growth of wood-decay fungus. 

Authority G.S. 106-65.29. 

SECTION .0600 - WOOD-DESTROYING ORGANISMS 
AGREEMENTS 

.0602 WOOD-DESTROYING INSECT AND OTHER 
ORGANISM REPORTS 

(a) Any written statement as to the presence or absence of 
wood-destroying insects or organisms or their damage in 
buildings or structures for sale shall be on the WDIR 100. An 
incomplete or inaccurate Wood-Destroying Insect Information 
Report shall not be acceptable and the issuance of such a 
report is grounds for disciplinary action by the Committee. 
No Wood-Destroying Insect Information Report or 
Wood-Destroying Organism Report shall be issued before an 
inspection of the building or structure is made. Each 
Wood-Destroying Insect Information Report issued by a 
licensee shall be kept in the files of said licensee and made 
available for inspection upon request of the Division. 

(b) If during the inspection of a structure, a licensee or his 
authorized agent finds live subterranean termites or visible 
evidence of past or present infestation of subterranean 
termites (such as tubes, damage, cast wings, infested wood 
scraps or other cellulose materials, etc.) in the structure and 
there is no visible evidence that said structure has been treated 
for subterranean termites, the licensee shall treat said 
structure for subterranean termites prior to the issuance of a 
Wood-Destroying Insect Information Report on the structure 
which states that the structure is free from subterranean 
iciiuitLS. termites or that a previous infestation is inactive. 



1247 



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PROPOSED RULES 



(c) If a treatment is performed in conjunction with a 
WDIR. a copy of the written agreement and warranty, if any, 
shall be attached to and become p art of the WDIR. 

tct {d} A licensee, certified applicator or registered 
technician shall not remove or destroy, or cause the removal 
or destruction of, any wood-destroying organism evidence 
discovered in, on, under or in or on debris under a structure 
inspected pursuant to this Rule except as required by 
Paragraph (b) of this Rule. 

Authority G.S. 106-65.29. 

.0604 WOOD-DESTROYING ORGANISMS 
RECORDS 

(a) A duplicate of each written agreement and waiver (if 
applicable), for the control or prevention of any 
wood-destroying organism shall be kept by the licensee for a 
minimum of two years beyond the expiration date of the 
written agreement. The duplicate of each written agreement 
shall contain, in addition to the information specified under 
fttric 2 NCAC 34 .0605(a) or Rul e .06Q5(d) o f this Sec t ion, 
(d). the following: 

(1) EPA approved brand name of pesticide used; and 

(2) Names of all employees who applied pesticide: and 
(^ tU Information required by CPA. EPA: 

(4) For restricted use pesticides: 

(A) concentration and approximate total volume 
of each pesticide applied: and 

(B) Subparagraphs (a)(1) and (2) and Part 
(a)(4)(A) of this Rule shall also be included 
on the customer's copy of the written 
agreement. 

(b) A duplicate of each wood-destroying insect or 
wood-destroying organism report shall be kept by the licensee 
for a minimum of two years beyond the date of issuance. 

(c) Non-commercial certified applicators shall maintain the 
following records for two years beyond the last date of 
treatment: 

(1) EPA approved brand name of all pesticides used; 

(2) Concentration and approximate total volume of 
pesticide applied: 

(3) Names of all employees that applied pesticide: 
t2) i4} Target pest; 

0i £5j Site of application; 

(4) £6} Date of application; and 

(5) (Zi Information required by EPA. 

(d) If the pesticide used to control any wood-destroving 
organism requires or recommends monitoring or inspecting 
for the pest to be controlled, the licensee, certified applicator 
or their employees shall make and maintain records of all 
such inspection or monitoring activities. Such records shall 
be made available for inspection as provided for in Rule 
.0328 of this Chapter. 

Authority G.S. 106-65.29. 

.0605 CONTRACTUAL AGREEMENTS FOR 



WOOD-DESTROYEVG ORGANISMS 

(a) All agreements for the control or prevention of 
wood-destroying organisms in existing structures shall be in 
writing and shall clearly set forth and include the following: 

(1) Date property was inspected and full name of the 
inspector; 

(2) Exact location of property inspected or treated; 

(3) Complete name and address of the property owner 
or his authorized agent; 

(4) Complete name and address of the licensee; 

(5) License number and phase(s) of the licensee and 
full name of company licensee represents; 

(6) Signature of licensee or his authorized agent; 

(7) F or exis t ing s tr uc t u r es, t he w r i t ten ag r eemen t shall 
include a A foundation diagram ol. if required or 
recommended by the label of tlie pesticide used, a 
site plan of the structure(s) or portions of such 
structure(s) inspected. The diagram or site plan 
shall clearly indicate and make full disclosure of the 
lo c a t ion of individual wa t e r sou r ces, atiy visual 
evidence of wood-des t roying organism inf e sta t i o n, 
whethe r — it — be — active or — inactiv e , — and visibly 
damaged timbe r s; of: 



(9) 



(10) 



(11) 
(12) 



(13) 



iM 
(B) 

£Q 

£Ei 

£D Ihe 



(G) For 



The location of individual water sources: 
Any visible evidence of wood-destroying 
organism infestation: 

Whether the infestation is active or inactive; 
The location of any visibly damaged timbers: 
Portions of the structure treated and not 
treated: 

The minimum number and proposed 
location(s) of bait or monitoring device 
placements, if applicable; and 
For treatment of wood-decay fungus 
infestations, the location and result of all 
moisture meter readings obtained pursuant to 
Rule .0508 of this Chapter; 
(8) The date upon which the written agreement is 
entered into and the period of time covered by the 
written agreement; 

The written agreement must clearly indicate, by 
complete not abbreviated common name(s), the 
wood-destroying organism(s) to be controlled or 
prevented, and cov ere d — cmdcr the w r it t en 
ag r eemen t ; complete terms of the warranty to be 
issued, if any; 

Whether or not reinspections are to be made and, if 
so, approximate time interval between, and renewal 
fees for same; 

Conditions under which retreatments will be made; 
Total price to be charged for treatment service, and 
for repairs or excavations, where such are to be 
performed; 

The written agreement, waiver (if applicable) and 
Wood-Destroying Insect Report or 

Wood-Destroying Organism Report, shall not show 
or include the address and telephone number of any 



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1248 



PROPOSED RULES 



licensee's representative or employee other than the 
address and telephone number of those specified in 
Subparagraphs (a)(3), (4), and (5) of this Rule; 

(14) Any licensee or business entity advertising to be 
bonded shall advise each customer, in writing, in 
the proposal, whether or not the con t rac t warranty 
or written agreement will be covered by a bond of 
any type; 

(15) If the performance of the work is guaranteed by a 
bond, the agreement shall set forth those 
performance guarantees in wording identical to that 
in the bond itself; 

(16) Rtrfc 2 NCAC 34 .0501(a) of this Cha pt e r shall 
also be foll o wed, followed: 

( 17) Whether the written agreement or warranty may be 
transferred to subsequent owners of the propeny 
and the terms of an^ such transfer. 

(b) A structure or structures covered by a con tr ac t written 
agreement or warranty for wood-destroying organism(s) 
treatment shall not knowingly be placed under an additional 
c o nt r ac t written agreement or warranty for the same treatment 
while the first con t ract written agreement or warranty is still 
in eff ect , effect without first obtaining specific written 
consent in letter form signed by the propert>' owner or his 
authorized agent. 

(c) When periodic reinspections or retreatments are 
specified in written agreements for the control or prevention 
of wood-destroying organisms, the licensee shall issue to the 
property owner or his authorized agent, after each 
reinspection or retreatment, a signed report of each 
reinspection or retreatment showing the condition of the 
property with respect to the presence or absence of 
wood-destroying organisms. A record of such reinspections 
and retreatments shall be kept in the file of the licensee. Such 
reports shall be subject to inspection by the enforcement 
agency or committee. 

(d) All agreements for the control or prevention of 
wood-destroying organisms in buildings under construction 
shall be in writing and shall clearly set fonh and include the 
following: 

( 1 ) Date of final treatment and period of time covered 
by the written agreement; 

(2) Exact location of the treated property; 

(3) Complete name and address of the property owner 
or his authorized agent; 

(4) Complete name and address of the licensee; 

(5) License number and phase(s) of the licensee 
full name of company licensee represents; 

(6) Signature of licensee or his authorized agent; 

(7) The written agreement must clearly indicate 
complete not abbreviated common name(s), 
wood-destroying organism(s) to be controlled or 
prevented, and cove r ed — unde r the w r itten 
ag ree m e nt; complete terms of tlie warranty to be 
issued, if any; 

(8) Whether or not reinspections are to be made and if 
so, approximate time interval between, and renewal 



and 



by 
the 



fees, if any, for same; 
(9) Conditions under which retreatments will be made; 

(10) Total price to be charged for treatment service; 

(11) Any licensee or business entity advertising to be 
bonded shall advise each customer, in writing, in 
the proposal, whether or not the cont r act warranty 
or written agreement will be covered by a bond of 
any type; 

(12) If the performance of the work is guaranteed by a 
bond, the agreement shall set forth those 
performance guarantees in wording identical to that 
in the bond itself; 

(13) Rtric 2 NCAC 34 .0604(a) of this Section shall also 
be follow e d, followed: 

(14) Whether the written agreement or warranty may be 
transferred to subsequent owners of the property 
and the terms of any such transfer. 

(e) If the licensee provides preventive treatment(s) for 
subterranean termites to a structure(s) for someone such as a 
builder or construction company who is constructing the 
building(s) for someone else or with the purpose of offering 
the building(s) for sale, the licensee may enter into a single 
master agreement with the builder to provide the preventive 
treatment(s) for subterranean termites. This single master 
agreement shall include the following: 

(1) Complete name and address of the builder, or his 
authorized agent; 

(2) That information required in Subparagraphs (d)(4), 
(5), (6), (7), (8), (9), (10), (11), (12), UiL and 
t«) Oil of this Rule. 

(0 When a structure is treated under an agreement with a 
builder, the licensee shall: 

(1) Following completion of the treatment, and upon 
notification by the builder or buyer, issue a written 
agreement to the initial buyer. The written 
agreement issued to the buyer shall include the 
following: 

(A) Complete name and address of the builder, 
or his authorized agent as it appears on the 
builder's agreement; 

(B) That information required in Subparagraphs 
(d)(1), (2), (3), (4), (5), (6), (7), (8), (9), 
(11). and f«-» 04} of this Rule. The builder 
shall be issued a copy of any written 
agreement issued the buyer. 

(2) Maintain a record of each treatment performed on 
each structure to include the following information: 

(A) Exact location of the structure treated; 

(B) Date each treatment was performed; 

(C) The ponion(s) of the structure treated. 

Authority G.S. 106-65.29. 

SECTION .0700 - HOUSEHOLD PESTICIDES 

.0701 PRECALTIONS 

(a) Household pest control servicemen's kits which contain 



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PROPOSED RULES 



pesticides shall not be left where pets, domestic animals, 
children or other unauthorized persons might remove, 
contact, or consume the contents. 

(b) When covered "tamper-proof" or "tamper- resistant" 
bait stations are required by the label for acutely toxic 
rodenticidal baits, each bait station shall be locked and 
adequately marked with the skull and crossbones a t leas t one 
inch high and the word "poison," each le t te r both at least one 
inch high, and the name, address, and telephone number of 
the licensee and name of the company the licensee represents. 

(c) When "tamper-proof" or "tamper-resistant" bait 
stations are required by the label of rodenticides other than 
those in Paragraph (b) of this Rule, each bait station shall be 
marked with the EPA approved brand name and the signal 
word from the label. 

Authority G.S. 106-65.29. 

.0703 WRITTEN RECORDS OF HOUSEHOLD PEST 
CONTROL 

(a) Written records on the treatment for the control of all 
household pests shall be maintained by the licensee and made 
available for inspection at any time during regular business 
hours upon request from the Division. Such records shall 
include the following information: 

(1) Complete name(s) and address(es) of both the 
certified applicator, if different than the licensee, 
and licensee or their authorized representatives and 
the property owner(s) or his authorized 
representative(s); 

(2) Name and address of company represented by the 
certified applicator or licensee or their authorized 
representatives; 

(3) Address(es) of property(ies) treated, type(s) of 
treatment(s), and date(s) treatment(s) performed; 

(4) Common name(s) of pest(s) to be controlled or 
covered by the initial agreement or any subsequent 
treatments; 

(5) EPA approved brand name of pesticide used; and 

(6) Information required by EPA. EPA: 

(7) Name of licensee, certified applicator or registered 
technician making the application: and 

(8) For restricted use pesticides. Subparagraphs (a)(5). 
(6) and £7} of this Rule shall also be included on 
the customer's copy of the written a greement or 
service record. 

(b) Non-commercial certified applicators shall maintain 
and make available for inspection the following records of 
pesticides applied: 

(1) EPA approved brand name of all pesticides applied; 

(2) Target pest(s); 

(3) Site of application; 

(4) Date of application; and 

(5) Name of certified applicator or registered 
technician making the application: and 

(5) £6} Information required by EPA. 

(c) Records must be retained for two years beyond the last 



date of treatment. 
Authority G.S. 106-65.29. 

SECTION .0800 - FUMIGATION 

.0803 WRITTEN RECORDS OF FUMIGATION 

(a) Written records shall be maintained on all fumigation 
operations and be made available for inspection, upon 
request, from by the enforcement agency or committee 
anytime during regular business hours. Such records shall 
include the following iiifoiniation. information for each 
fumigation performed: 

(1) Complete name(s) and address(es) of both the 
certified applicator, if different than the licensee, 
and licensee or their authorized representatives and 
the property owner(s) or his authorized 
representative(s); 

Name and address of company represented by the 
licensee or certified applicator or their authorized 
representative; 

Address of property(ies) to be fumigated; 
Common name(s) of pest(s) to be fumigated; 
EPA approved common name of p es t icide fumigant 
used; 

EPA registration number of fumigant applied: 
(7) If a restricted-use pesticide is used, that 
information required by EPA; 
Total amount of fumigant applied: 
Name of licensee or certified applicator performing 
the fumigation: 

For restricted use pesticides. Subparagraphs (a)(5). 
(6). (8) and £9} of Uiis Rule shall also be included 
on the customer's copy of the written agreement or 
service record: 

(1 1) If the pest to be fumigated is a 
wood-destroying organism, all of Rule .0605 of 
Sec t i o n .0600 this Chapter shall be followed. 
This Rule applies only to t he fumiga t ion of st r uc t ures. 

(b) Non-commercial certified applicators shall maintain the 
following records of pesticides applied: 

(1) EPA approved brand name of all pe s t icid e s 
fumigants applied; 

(2) EPA registration number of fumigant applied: 

(3) Total amount of fumigant applied: 

(4) Name of certified applicator performing the 
fumigation: 

^ £5J Target pest(s); 

(3) £6} Exact site of application; 

f4) £7} Date of application; and 

t5t £8} Any information required by EPA. 

(c) Records must be retained for two years beyond the last 
date of treatment or the expiration of the written agreement, 
if applicable. 

Authority' G.S. 106-65.29. 



(2) 



(3) 
(4) 
(5) 

£6} 

£8} 
£9} 

(10) 



ifh 



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1250 



PROPOSED RULES 



SECTION .0900 - DUTIES AND RESPONSIBILITIES 
OF LICENSEE 

.0902 nNANCIAL RESPONSIBILITY 

(a) A licensee shall obtain and maintain financial 
responsibility in the form of a general liability insurance 
policy which covers operations in progress and completed 
operations. The insurance policy must provide coverage for 
all employees that work for the licensee. If an insurance 
policy is issued to a structural pest control company that 
employs more than one licensee and the policy otherwise 
meets the standard set forth in this Rule, all licensees 
employed by the structural pest control company will be 
deemed to have insurance. 

(b) The insurance policy required in Paragraph (a) of this 
Rule must provide the following minimum coverage: 

(1) Single limit 

Property Damage $100,000 Each Occurrence 

Bodily Injury 5300,000 Each Occurrence 

(2) Combined single limit $300,000 Each Occurrence 

(c) Each applicant for a license in any phase of structural 
pest control shall show evidence of his financial ability to 
properly indemnify persons suffering from the use or 
application of pesticides in the form of a Certificate of 
Insurance completed by the insurance company with the 
Division named as a certificate holder. 

(d) The Certificate of Insurance shall clearly set forth the 
type of coverage, limits of liability, and any exclusions of the 
policy and shall have attached an endorsement which indicates 
that the policy provides coverage for any pollution or 
contamination occurring as a result of the use or application 
of any p es t icide, pesticide or shall state that such an 
endorsement has been issued with the policy. 

(e) The license applicant shall be responsible for the 
submission of the Certificate of Insurance to the Division as 
specified in Paragraphs (c) and (d) of this Rule. No license 
shall be issued, re-issued, or renewed until said Certificate of 
Insurance is received by the Division. 

(f) The insurance policy(s) shall be with companies 
licensed, or otherwise approved to do business in North 
Carolina, by the NC Department of Insurance. The insurance 
policy shall be in full force and effect during the entire period 
covered by the license certificate. The license shall expire 
upon; 

reduction of the available coverage under the policy 

below the minimum limits set forth in Paragraph 

(b) of this Rule; 

cancellation of the policy; or 

expiration of the policy. 
Such expired license shall be reinstated only upon satisfactory 
proof that the licensee has obtained the required financial 
responsibility coverage. 

(g) The licensee shall give the Division at least 10 days 
notice prior to the occurrence of the following: 

(1) cancellation of the policy; 

(2) material change in the policy; or 

(3) reduction of the available coverage under the policy 



(1) 



(2) 
(3) 



below the minimum limits set forth in Paragraph 
(b) of this Rule. 

(h) No structural pest control license shall be issued to any 
person where there exists an outstanding and unpaid final M 
judgment against said person resulting from any civil suit " 
arising out of damages suffered by a plaintiff as the result of a 
misuse of a pesticide by said person. Any current and valid 
structural pest control license shall become null and void 180 
days following the imposition of a final judgment awarding 
damages to any plaintiff resulting from a civil suit arising out 
of losses suffered as the result of a pesticide misuse by the 
holder of said license unless the final judgment is settled in 
full within said 180 days. 

(i) Paragraphs (a) through (g) of this Rule shall not apply 
to any person holding an inactive license as defined by Rtik 
.0102(30) of this Cha p te r . 2 NCAC 34 .0102(30). 

Authority G.S. 106-65.37. 

.0904 PROfflBITED ACTS 

(a) No reference shall be made by any certified applicator, 
licensee, business establishment or business entity in any 
form of advertising that would indicate approval, 
endorsement or recommendation by the committee, or by any 
agency of the federal government or North Carolina State, 
county, or city government. 

(b) The use of a structural pest control license(s), certified 
applicator's identification card(s), registered technician's 
identification card(s) or licensee identification card(s) for any A 
purpose other than identification is prohibited. I 

(c) In solicitation of structural pest control business, no . 
licensee or his employees shall claim that inspections or 
treatments are required, authorized, or endorsed by any 
agency of the federal government or North Carolina State, 
county, or city government unless said agency states that an 
inspection or treatment is required for a specific structure. 

(d) No licensee shall advertise, in any way or manner, as a 
contractor for structural pest control services, in any phase(s) 
of work for which he does not hold a valid license(s) as 
provided for under G.S. 106-65. 25(a), unless said licensee 
shall hold a valid certified applicator's identification card or 
registered technician's identification card, as provided for 
under G.S. 106-65.31, as an employee of a person who does 
hold a valid state license(s) covering phases of structural pest 
control work advertised. 

(e) The impersonation of an^; North Carolina State. 
county, or city inspector or any other governmental official is 
prohibited. 

t^ tl} No licensee, certified applicator or registered 
technician's identification card holder shall advertise or hold 
himself out in any manner in cormection with the practice of 
structural pest control as an entomologist, plant pathologist, 
horticulturist, public health engineer, sanitarian, unless such 
person shall be qualified in such field(s) by required ^ 
professional and educational standards for the title used. fl 

(ft t^ No certified applicator, licensee or his employees ^ 
shall represent to any property owner or his authorized agent I 



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12:14 



PROPOSED RULES 



or occupant of any structure that any specific pest is infesting 
said property, structure, or surrounding areas thereof, unless 
strongly supporting visible evidence of such infestation 
exists. 

fg) {hi No certified applicator or licensee or their 
employees shall authorize, direct, assist, or aid in the 
publication, advertisement, distribution, or circulation of any 
material by false statement or representation concerning the 
licensee's structural pest control business or business of the 
company with which he is employed. 

fh) (il No certified applicator or licensee or their 
employees shall advertise or contract in a company name style 
contradictory to that shown on the certified applicator's 
identification card or license certificate. 

(t) {jl No certified applicator shall use any name style on 
his certified applicator's identification card which contains 
the words "exterminating", "pest control" or any other words 
which imply that he provides pest control services for a 
valuable consideration unless he is a licensee or a duly 
authorized agent or employee of a licensee. 

ij) £kl No licensee issued an inactive license shall engage 
in any phase of structural pest control. 

fk) £11 No licensee, certified applicator or licensee or t heir 
employees registered technician shall apply or arrang e fo r t he 
applica t ion o f any subs t anc e containing a boron com po und 
wi t hin a struc t ure unless it is an EPA registe r ed pesticide. 
indicate on any foundation diagram prepared pursuant to Rule 
.0601 or .0605 of this Chapter that hidden damage or 
possible hidden damage due to any wood-destroying organism 
exists in a structure unless there is visible evidence of 
infestation and/or damage present in the immediate area of the 
alleged hidden damage. 

(m) No pesticide shall be applied for the purpose of 
performing structural pest control when the conditions at the 
site of application favor drift or runoff from the target site. 

Authority G.S. 106-65.29. 

SECTION .1100 - INSPECTION FEES 

.1101 RIGHTS OF ENFORCEMENT 

(a) The enforcement agency, and the member of the 
Attorney General's staff assigned to the committee shall have, 
during regular business hours, the right to see, examine and 
inspect those records, chemicals and such equipment as may 
be deemed necessary to the structural pest control operations 
of said person within the provisions of these rules and 
regulations and the Structural Pest Control Law. 

(b) The enforcement agency or any member of the 
committee may, in its discretion inspect any properties treated 
by structural pest control licensees or certified applicators for 
pests for the purpose of determining the efficiency of the 
remedial measures applied and to determine if treatment(s) 
comply with the requirements set forth in these rules and 
regulations. 

(c) When requested by the enfo r cemen t — agency — or 
c o mmittee. Division or Committee, the licensee or certified 



applicator shall furnish, for analyses, sufficient samples of 
pesticides or other chemicals used in treating for structural 
pestST pests and shall provide copies, or allow the copying, of 
such records as may be deemed necessary by the Division or 
Committee to document the use or application of pesticides or 
performance of work within the provisions of these Rules and 
the Structural Pest Control Law. 

Authority G.S. 106-65.29. 



TITLE 11 - DEPARTMENT OF INSURANCE 

Notice is hereby given in accordance with G.S. I50B-21.2 
that the NC Fire & Rescue Commission intends to adopt 
rules cited as 11 NCAC 5C .0101 - .0104. Notice of Rule- 
making Proceedings was published in the Register on 
Novembers. 1997. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be corulucted at 10:00 a.m. on 
February 5, 1998 at the Dobbs Building, 3"' Floor Hearing 
Room. 430 N. Salisbury St. . Raleigh, NC. 

Reason for Proposed Action: These Rules are necessary to 
establish guidelines for participation and payment of 
premiums to the Worker's Compensation Fund. 

Comment Procedures: Written comments should be sent to 
Tim Bradley, do Fire and Rescue Division. NC Department 
of Insurance, 111 Seaboard Avenue, Raleigh, NC 27604. 
Questions may be directed to Tim Bradley at (919) 733-2142. 

Fiscal Note: 772^5^ Rules do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 5 - FIRE AND RESCUE SERVICES 
DFVISION 



SUBCHAPTER 5C 



WORKER'S COMPENSATION 
FUND 



SECTION .0100 - GENERAL PROVISIONS 

.0101 DEFINITIONS 

As used in this Subchapter: 
(1) "Commission" means the State Fire and Rescue 
Commission, created in G.S. 58-78-1. 
"Eligible unit" has the same meanin g as in G.S. 58- 
87-10(a). 

"Fund" means the Workers' Compensation Fund, 
created in G.S. 58-87-10(b). 



01 
01 



Authority- G.S. 58-87-10. 



12:14 



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January 15, 1998 



1252 



PROPOSED RULES 



.0102 MEMBERSHIP CANCELLATION 

If the Commission determines that an eligible unit is no 
longer eligible for membership in the Fund, or the eligible 
unit ceases to gay premiums as they become due, the 
Commission shall cancel the eligible unit's membership. The 
Commission shall provide written notice of the cancellation to 
the eligible unit. Upon cancellation of membership, the 
eligible unit shall pay any additional premiums that are due. 

Authority G.S. 58-87-10. 

.0103 ROSTER OF COVERED INDIVIDUALS 

Each year every eligible unit shall determine and report to 
the unit's governing body the names of the individual 
members of the eligible unit who are covered by the Fund. 
The governing body shall, upon determination of the validity 
and accuracy of the information, certify the information to the 
Commission on a prescribed form by June 30 of each year. 

Authont\- G.S. 58-87-10. 

.0104 PAYMENT OF PREMIUMS 

Each eligible unit shall pay an annual premium for each 
member of the eligible unit who is covered by the Fund. The 
premium shall be based on the number of members submitted 
by the eligible unit on the roster prescribed by Rule .0103 of 
this Section, and shall be a set amount for each member. The 
eligible unit shall gay the total premium amount on or before 
Julv 11 of the next fiscal year: or the eligible unit shall forfeit 
its membership in the Fund. 

Authority G.S. 58-87-10. 

******************** 

Notice is hereby given in accordance with G.S. 150B-21.2 
that the NC Home Inspector Licensure 
Board/Department of Insurance intends to adopt rules cited 
as II NCAC 8 .1301 - .1308. Notice of Rule-making 
Proceedings was published in the Register on November 3, 
1997. 



Fiscal Note: These Rules do not affect the e.xpenditures or 
revenues of state or local government funds. These Rules do 
not Iwve a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 8 - ENGINEERING AND BUILDING 
CODES DIVISION 



SECTION .1300 



HOME INSPECTOR CONTINUING 
EDUCATION 



.1301 DEHNITIONS 

(a) As used in this Section: 

(1) "Credit hour" means one continuing education 
course hour, comprising at least 50 minutes of 
instruction. 

(2) "License period" means October i through the 
following September 30. 

(3) "Licensee" means a home inspector or associate 
home inspector licensed by the Board under G.S. 
143. Anicle 9F and Section .1000 of this Chapter. 

(b) The definitions contained in G.S. 143-151.45 apply to 
this Section and are incorporated into this Section by 
reference. 

Authority G.S. 143-151.49; 143-151.55. 

.1302 RENEWAL OF ACTIVE LICENSE 

(a) In order to renew an active home inspector or associate 
home inspector license for license periods beginning on or 
after October J^ 1999. the licensee shall have completed. 
during the previous license period, the following number of 
credit hours: 

iX) From October JL 1998 through September 30. 
eight credit hours. 
October L. 1999 through September 30. 



Ol 



From 
1999: 
From 
2000: 



12 credit hours. 
(3) Each subsequent license period: 12 credit hours, 
(b) A licensee who is initially licensed on or after June 1 is 
exempt from this Section for tlie following license period. 

Authority G.S. 143-151.49; 143-151.55. 



Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 9:00 a.m. on January 
30, 1998 at 410 North Boylan Avenue, Raleigh. NC 27603. 

Reason for Proposed Action: Tliese Rules establish 
continuing education requirements for licensed home 
inspectors. 

Comment Procedures: Written comments should be sent to 
Grover Sawyer, Home Inspector Licensure Board, NC 
Department of Insurance. 410 North Boxlan Avenue, Raleigh, 
NC 27603, (919) 733-3901. 



.1303 ESIACTIVE LICENSE 

A person holding an inactive license is not subject to this 
Section. In order to change a license from inactive status to 
active status, the licensee must complete the same number of 
continuing education credit hours that would have been 
required for an active license during the period of inactive 
status: but not more than 16 credit hours. 

Authority G.S. 143-151.49; 143-151.55. 

.1304 COURSE REQUIREMENTS 

(a) The same continuing education course may be taken 
only once for continuing education credit during any three 
year period. 



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PROPOSED RULES 



(h) For each license period the Board shall specify 
mandatory subject matter for one course, such course to be 
not less than two nor more than four credit hours. The 
remaining courses shall be elective courses covering subject 
matter to be chosen by the licensee and meeting all other 
criteria specified in this Section. 

(c) F.ach course shall comprise at least one credit hour. 

Authority G.S. 143-151.49; 143-151.55. 

.1305 ATTENDANCE REQUIREMENTS 

In order to receive credit for completing a continuing 
education course, a licensee must attend at least 90 percent of 
the scheduled classroom hours for the course, regardless of 
the length of the course. 

Authority G.S. 143-151.49; 143-151.55. 

.1306 EXTENSIONS OF TIME 

A licensee may request and be granted an extension of time 
to satisfy the continuing education requirement for a 
particular license period if the licensee provides evidence to 
the Board that the licensee was unable to obtain the necessary 
education because of an incapacitating illness or other 
circumstance that: 

(1) Existed for a substantial portion of the license 
period: and 

(2) Constituted a severe and verifiable hardship: and 

(3) Made it impossible or unreasonably burdensome to 
comply with the continuing education requirement. 

Authority G.S. 143-151.49; 143-151.55. 

.1307 DENIAL OR WITHDRAWAL OF CREDIT 

(a) The Board shall deny continuing education credit 
claimed by a licensee, and shall withdraw continuing 
education credit previously awarded by the Board to a 
licensee if: 

(1) The licensee unintentionally provided incorrect or 
incomplete information to the Board concerning 
continuing education or compliance with this 
Section: or 

(2) The licensee was mistakenly awarded continuing 
education credit because of an administrative error: 
SI 

£3} The licensee failed to comply with the attendance 
requirement established by Rule .1305 of this 
Section. 

(b) When continuing education credit is denied or 
withdrawn by tlie Board under Subparagraph (a)(1) or (a)(2) 
of lliis Rule, the Board shall, upon written request of the 
licensee, grant the licensee an extension of time to satisfy the 
continuing education requirement. When continuing 
education credit is denied or withdrawn by tlie Board under 
Subparagraph (a)(3) of this Rule, the licensee remains 
responsible for satisfying the continuing education 
requirement. 



Authority G.S. 143-151.49; 143-151.55. 

.1308 DUTIES OF LICENSEES TO SHOW PROOF 
OF COMPLIANCE 

(a) In order to receive credit from the Board for 
completion of continuing education courses under this 
Section, a licensee must provide documentation to the Board 
on a form prescribed by the Board, no later than September 
15 of each year, that: 

(1) Each continuing education course or courses taken 
and completed by the licensee: 

(A) Comprised at least one credit hour: and 

(B) Contained subject matter that was directly 
related to the practice of home inspection. 
Examples of course subject matter that are 
acceptable to the Board for credit include: 
Topics directly related to systems and 
components listed in the Standards of 
Practice and Code of Ethics in Section .1100 
of this Chapter, report writing, and 
inspection procedures and practices. 
Examples of subject matter that are not 
acceptable include: Sales and marketing 
topics, general business management, office 
procedures, success training, personal 
development, radon testing, and time 
management. 

(2) The licensee: 

(A) Had an opportunity to interact directly either 
in person or by interactive television with the 
instructor at all times during the course: or 

(B) Took a written examination after course 
completion if tlie course comprised 
correspondence instruction or media-based 
instruction, such as videotape, remote non- 
interactive television, or computer programs: 
or 

(Q Verified completion of tlie course if the 
course was based on alternate educational 
practices. such as computer-assisted 
instruction or videotape instruction: and 

(D) Complied with Rule .1304 of this Section. 

(b) The documentation filed by the licensee with the Board 
shall include: 

(1) A course outline provided by the course sponsor 
showing details of the course content. 
In tlie case of traditional classroom courses, a 
course completion certificate provided by the 
course sponsor indicating the licensee's completion 
of the course (or attendance for at least 90% of the 
allotted time). 

In the case of alternate education courses (such as 
videotape, computer-assisted, audio tape, or 
correspondence courses) a course completion 
certificate provided by the course sponsor 
certifying that the sponsor has verified that the 
licensee has passed a written examination based on 



of this (2} In tlie case of 



ill 



12:14 



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January 15, 1998 



1254 



PROPOSED RULES 



the course subject matter, or submitted equivalent 
proof of completion to the sponsor. 

Authority G.S. 143-151.49; 143-151.55. 

******************** 

Notice is hereby given in accordance with G.S. 150B-21.2 
that the NC Department of Insurance intends to amend 
rule cited as 1 1 NCAC 10 .0105. Notice of Rule-making 
Proceedings was published in the Register on November i, 
1997. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 10:00 a.m. on 
February 5. 1998 at the Dobbs Building, 3"' Floor Hearing 
Room, 430 N. Salisbury St., Raleigh, NC. 

Reason for Proposed Action: The amendment to this Rule 
covers the filing of individual risk policies and reduces the 
filing requirements. 

Comment Procedures: Written comments should be sent to 
Charles Swindell, NC Department of Insurance, 430 N. 
Salisbury Street, Raleigh, NC 27611, (919) 733-3368X226. 

Fiscal Note: This Rule does not affect the expenditures or 
revenues of state or local government funds . This Rule does 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 



fO — All filings made unde r this Rule must be. i i ^filLd 
wheneve r a change occurs in o r t o the p olicy or upon llie 
r enewal date — of — the — p olicy. — whichever — occurs — First. 
Con t inuous p olicies are not permitted. 

(b) Continuous policies are not permitted. 

(tH ic] A copy of the approved filing shall be retained by 
the filer in accordance with 11 NCAC 19 .0002 through 11 
NCAC 19 .0005. 

Idj If the rates have been determined bx "(a) rating" or 
"individual risk rating", the insurer shall submit the 
following: 

(1) A statement describing how the rates were 
calculated. 

(2) A certification that the rates are not excessive, 
inadequate, or unfairly discriminatory. 

Authority G.S. 58-2-40; 58-6-5; 58-41-50; 58-43-5. 

*******************4c 

Notice is hereby given in accordance with G.S. 1508-21. 2 
that the NC Department of Insurance intends to repeal 
rules cited as 11 NCAC IIB .0601 - .0617; IIC .0108 - 
.0109. Notice of Rule-making Proceedings was published in 
the Register on November 3, 1997. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 10:00 a.m. on 
February 5, 1998 at the Dobbs Building. I" Floor Hearing 
Room, 430 N. Salisbury St., Raleigh, NC. 



CHAPTER 10 - PROPERTY AND CASUALTY 
DIVISION 

SECTION .0100 - GENERAL PROVISIONS 

.0105 MAMJSCRIPT OR INDIVIDUAL RISK 
nLE^JGS 

(a) Within 60 days after the inception date of a manuscript 
or individual risk policy, the insurer must shall submit to the 
D e partm e nt — of — Insu r ance, Department's Property and 
Casualty Division: 

(1) A full and com p let e co p y of th e policy . Any form 
or endorsement not previously filed with the 
Department and approved for ttsc — most — be 
s pe cifically identified, use. 

t?1 A — s t atemen t — desc r ibing — htrw — the — rates — were 

calculated. 

t3j A ce r ti t lcation tha t the r ates a r e no t excessive, 

inad e quate, no r unfai r ly discriminato r y. 

f4^ Hi A statement explaining why a manuscript or 
individual risk filing policy was needed. 

t5t 111 The appropriate filing fee. 

(b) The Commission er may require such otlici ' information 
as he deems t o be necessary for a review of filings made 
under this Rule. 



Reason for Proposed Action: 

II NCAC IIB .0601 - .0617- The 1997 General Assembly 

enacted legislation (S.L. 1997-362) that either superseded 

these Rules or rendered them obsolete. 

II NCAC IIC .0108 - .0109 - The Department of Insurance 

has determined that these Rules are without statute authority. 

Comment Procedures: Written comments should be sent to 
Ray Martinez, NC Department of Insurance, 430 N. Salisbury 
Street, Raleigh, NC 27611, (919) 733-2002. 

Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 



CHAPTER 11 



FINANCIAL EVALUATION 
DIVISION 



SUBCHAPTER IIB - SPECIAL PROGRAMS 

SECTION .0600 - WORKERS' COMPENSATION 
SELF-INSURANCE 

.0601 DEFINITIONS 



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PROPOSED RULES 



As used ill this Secti o n : 

i^ "Act'' meaiis G.S. 9 7, as amended. 

(2) "Ccnificd audi t " means an audit upon which an 

auditor duly qualified t o practice as a cer t ified 
p ublic — accountan t — exp r esses — hrs — pr ofessional 
opinion tha t the accompanying statements fai r ly 
presen t t he financial p osition of t he em p loye r o r o f 
the grou p , in conformity wi t h generally acce pt ed 
accounting principles as c o nsidered necessary by 
the audito r unde r the ci r cumstances. 



ot- 



f5^ 



fff- 



W- 



office to di r ec t the administ r ation of a group; and 
whose duties include r es p onsibility fo r a p proving 
applications fo r new members of such g r oup. 

(i5) "T r us t ees' fund" m e ans any mone t a r y fund und er 

the con tr ol of the board of tr ustees of a g r ou p that 
is not p art of the loss fiind o r tha t is no t set aside to 
pay claims. 



Authority G. S. 
97-93: 97-136. 



58-2-40; 58-2-145; 58-2-171; 58-2-205; 



"Certified Public Accountant" or "CPA" means an 
independent — certified — public — accountan t — or 
accounting — fnm — in — good — s t anding — with — the 
Am e rican Ins t i t ute of Cer t ified Public Accountan t s 



.0602 ADMINISTRATION - ALL SELF-INSURERS 

itr) — Each self-insu r e r , as a condi t ion of the au t hori t y to 
self-insu r e, — shaH — pr ovide proof of compliance with — the 



and- 



in all s t ates in 
licensed t o pr actice. 



which the CPA oi fiim is pr ovisions of this S e c t ion r egarding i t s ability t o o p e r ate a 

p rogram — of — self-insurance. — ei t her — th r ough — in-hous e 



f4i "Co rp o r ate sure t y" means an insu r e r au t ho r ized by ca p abilities o r s er vicing com p anies. 

the Commissioner t o w r i t e su r ety business in No r th 
Carolina. 



(b) Every self-insure r shall make provision fo r p e r sons t o 



adminis t e r and adjust claims. 



"Employer" — mean? — a — self-insured — individual 
e m p l o ye r . 



ftj — If a self-insure r con t rac t s with a se r vic e 



-the 



re r con t rac t s witn a se r vice com p any. 
C o mmission er — shaH — tisc — the — se r vice — company — as — an 
"Fund yeai - " means t ha t elec t ed p eri o d of coverage, intennediary in his dealings with the self-insu r e r if t he 
up t o 12 months in duration, pursuan t t o whi c h a C o mmissione r de t eiiuiiics ilia t this will r esult in a mo r e r a p id 
If-insu r e r extends c o ve r age t o i t s membe r s. and accura te flow of information from the self-insu r e r and 

will aid in the self-insu r e r 's compliance with this Section and 
t he a ct . 



g ro u p se 

"G r ou p " means a s e lf-insured grou p of e mployers 



"Loss fund" means tha t por tion of ne t or s t andard 
p remium, exclusiv e o f p as t due balances deemed t o 
b e d e linquent, tha t cove r s th e re t ention o f liabili t y 



(di — Each self-insurer con tr ac t i n g wi t h a service company 
shall wi t hin 30 days af ter e x e cution provide a co p y of t he 



for a self-insurer unde r the teiiiis of an aggregate c o n t rac t as w e ll as any am e ndments t o an existing cont r ac t t o 



excess — insu r ance — con tr ac t ; — and — means, — in — the the Commissioner 
absence of an agg re gate excess p oli c y, t ha t p ort i o n 



o f net o r s t andard pre mium, e xclusiv e of pas t due 
balances deemed t o be delinquen t , t ha t is all o ca t ed 
to p ay claims. 

"Manual pr emium" m e ans pr emium dciei mined by 
mul t iplying — the — annualized — p ay ro ll — am o un t . 



fe) — Each s e lf-insu r e r and se r vice company shall maintain 
i t s reco r ds in acc or dance wi t h Chap t er 1 9 of this Title. Th e 
l o ca t i o n of thes e r eco r ds shall be within No r th Cai - olina and 
shall b e made known to t h e Commissioner as necessary fo r 
examina t i o n p u rp oses. 



seg re ga t ed in t o the pr o p e 

job — classifica t ions, — by — the — a pp licabl e — manual 

pr emium ra t es approved f or t he use in North 

Car o lina. 

t+6) "Qualified — ac t uary" — means — a — membe r — in — go o d 

s t anding of th e Casual t y Actuarial Socie t y or a 
membe r — in — good — standing — of — the — Am er ican 
Academy of Actuaries wh o has been a ppr oved as 
qualifi e d fo r signing casual t y l o ss r eserv e op inions 
by the Casualty P r ac t ic e Council o f the American 
Academy of A ct uaries. 



(f) Fo r each examinati o n conducted, a wri tt en r e p ort 
r workers' compensa t i o n be — pr e p ared — and — submi tt ed — to — the — Commissione r 



ShaH 



-m 



acco r dance with 11 NCAC IIC .0102 and IIC .0103. 



Authority G.S. 58-2-40; 58-2-131; 58-2-132; 58-2-133; 
58-2-145; 97-93; 105-228.9. 



.0603 



EXCESS INSURANCE POLICIES - ALL 
SELF-INSURERS 

wo r k er s' 



(ct) — Any excess wo r k er s' com p ensa t ion insu r ance p olicy 
r equi r ed by and submit t ed in accordanc e with t his Sec t ion 
shall be underwritten by ci t he r a lic e ns e d insurance company 



fH^ "Self-insu r er" means either a self-insu r ed individual o r an a pp r o ved surplus lines insu r ance com p any. 

employer o r self-insu r ed grou p of e m p loy er s. 
f+2) "Se r vice company" means a business that has 

cont r acted wi t h an em p loye r o r g r ou p fo r the 

pur p ose of p roviding any o r all se t vices necessary 



tb) — No p olicy of excess insu r ance issued o r r enew e d afte r 
Octobe r 1, 19 9 0. shall be r ecognized by the Commissione r in 



conside r 



to a self-insu r ed pr ogram 



tH^ "Su rp lus" means all assets a loss fund has on hand 

tha t are in excess of all loss r ese r ves and liabilities. 

1+4) "T r ustees" means the gove r ning body of a g r ou p 

tha t is el e cted by its membe r s fo r stated terms of 



: r ing t he abili t y of a self-insu r e r to fulfill its financial 
obligations und er the act unless such p olicy pr ovides fo r a t 
leas t 30 days w r i tt en notic e of canc e llatio n , by r egiste r ed o r 
c e r t ifi e d mail, retu r n r ecei pt r equested, to the other p arty to 
the p olicy and to the Commissioner. 

(ci All self-insu r e r s shall file co p ies of any e xc e ss 

insurance — binders. — p olici e s. — ce r tifica te s. — or — any — othe r 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1256 



PROPOSED RULES 



evidences of coverage with the ConTmissionc r u p on the 
reques t o t " t he Commissione r . 

Authority G.S. 58-2-145; 97-93. 

.0604 REPORTS - ALL SELF-INSURERS 

(trt — Each sel t -insu rcr shall submit to the Commissione r 
p ayroll information for th e pur p ose of t ax assessment as 
required by this Section. The Rules, classifications, and r ates 
JB — set — forth — m — the — most — recen t ly — a ppr oved — wo r k er s' 
c o mp e nsation — and em p loye r s' — liabili t y — insu r anc e — manual 
gove r ns the audi t s of p ayrolls and the adjustments — of 

pr emiums. Pay r oll information — shaH — be — submitt e d 

summarized — by — classification. Each — self- insur e r — shall 

main t ain tme and accu r a t e payroll r ecords. — Unless pay r oll 
records are — maintain e d — in such manne r that a t r u e and 
accu r ate identification and division by e m p loy er or group 
membe r — d ep artmen t s — or — divisions — or — occu p ational 
classifications can re adily be determined fo r pr o p e r r ating, the 
en t i r e p ayroll of t ha t em p loye r o r g r ou p membe r shall be 
pr e sumed to be within t he classification to which the highes t 
worke r s' compensation rate is a p plicable. 

tb) — Each self-insu r e r shall on o r befo r e May 10 of each 
year file with t he Commission e r a stat e ment of total workers' 
com p ensation benefits p aid by the self-insu r e r du r ing the 
pr evious calendar year, as well as t otal futu r e liability of all 
open claims, r egardless of the da t es of accidents. 

(rj — All self-insurers shall have an annual audit by a CPA 
and — shall — fife — an — audited — financial — r e p o rt — with — the 
Commission e r on o r b e fo re May 10 for the previous calendar 
yea r . Two co p ies of t his r epo r t shall be filed in the office of 
t he Chief Examin er . Fi e ld Audit S e ction of the De p artment. 

(d) — Extensions of the May 10 filing date shall be g r ant e d 
by t he Commissione r fo r p e r iods of u p to 45 days each u p on 
a showing by the self-insur e r and its CPA of th e re asons fo r 
r equesting the e x t ensions. — Requests fo r extensions must be 
submi t ted in w r iting not l e ss than 15 days b e fo r e May 10 o r 
the pr evious ext e nsion due date. The Commission er shall not 
g r ant mo r e than th r ee extensions unde r this Paragra p h to any 
self-insur e r. 

t^ — The annual ce r tified audited financial r e p o rt shall 
re p o r t the financial p osition of the self-insu r e r as of the mos t 
r ecent calcndai ' o r fiscal yea r in conformity with gene r al 
acce p ted accounting pr inci p les. The annual cenified audited 
financial r e p o rt shall include the following: 

tii r e p o r t of CPA; 

ti) balance sheet r e po r ting assets, liabilities, ca p ital, 

and su rp lus: 

t?r) statement of o p e r ations: 

(+) statemen t of cash flows: 

(5) statement of changes in ca p ital and su rp lus; and 

t6i notes to the financial statem e nts; 

tf) — In addition to th e annual cenified audited financial 
r c p on, each self-insurer shall furnish the Commission e r with 
a co p y of a repor t of matters noted in an audit r elated to the 
inte r nal control structure. 

tgl A r e p ort of t he evaluation by the CPA of the 



accounting p rocedu re s of the self-insurer and its system of 
in ter nal cont r ol, including any remedial action taken oi 
p r o p osed, shall be fil e d annually by the self-insurer with Uic 
De p artment at the time of the filing of the annual certified 
audited financial report. 

Authority- G.S. 58-2-40; 58-2-145; 58-2-205; 97-93; 105- 
228.9. 

.0605 DEPOSITS OR SURETY BONDS - ALL 
SELF-INSURERS 

fal — In addition to cash, de p osit funds that arc acceptable 
unde r this Section as a security deposi t are U.S. GovernnKiit 
bonds, notes, o r bills, that are issued o r guaranteed by th e 
United States of America ; money market funds that aie 
inves t ed only in U.S. Government o r U.S. Government 
ag e ncy obligations that have a matu r ity of one year or less, 
certificat e s of de p osit issued by duly chart e red coiniriticial 
banks o r thrif t institu t ions and tha t are fully pro t ected by the 
Fede r al De p osit Insu r ance Co rp o r ation or the federal Savings 
and Loan Insu r ance Co rp o r ation, o r any successo r enti t y, 
surety bonds in a form acce pt able to the Commissioner and 
issued by a co rp o r ate su re ty : o r such other investments that 
are a p prov e d by the Commissione r . 

tbi — All bonds or securi t ies t ha t are p osted as security 
d e posits shall be valued annually a t mai ' ke t value. — In the 
event ma r ke t value is less than face value, the Commissioner 
may — re qui re tha t additional secu r i t ies be p osted by t he 

self-insu r er. In — making — sttch — determination, — the 

Commissione r shall — conside r — the — self-insu r er's — financial 
condition, th e amount by which market value is less than fact 
value, and the likelihood that such secu r ities will be needed tu 
pr ovid e ben e fits. 

(ci Secu r ities de p osi t ed unde r this S e ction shall b e 

assign e d t o the Commissioner, his successo r s, assigns, or 
t rustees, p ursuant to a legal document that is acce p table t o th e 
Commissione r and that r ende r s such securi t ies negotiable by 
the Commissioner. — In the even t a s e lf-insurer is in default, 
the Commissioner may sell o r collect, o r both, such amounts 
that will yield sufficien t funds to mee t the self-insurer's 
obligations unde r the act. Inte r est accruing on any nego t iable 
security deposit e d unde r this Section shall be collec t ed and 
t r ansmitt e d to th e self-insu r e r pr ovided that the self-insurer is 
not in default. As used in this Parag r a p h "default" means the 
inabili t y or failu re to mak e t imely paymen t s of any awai ' ds or 
othe r disbu r sements required p u r suan t t o the act. 

(tH All de p osits shall r emain in the custody of th e 

Commissione r until all obligations of the self-insure r hav e 
been fully discharg e d, at which time the Commissioner shall 
return the de p osits to t he self-insu r e r . 

(e) No judgm e nt c r editor, other than a claimant entitl e d t o 
benefits unde r th e act, has a right to levy u p on any of a 
self-insure r 's deposits made under this Section. 

Authority G.S. 97-93. 

.0606 SECURITIES WITHDRAWAL OR 



1257 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



PROPOSED RULES 



EXCHANGE - ALL SELF-INSURERS 

■hrty — securi t ies — hrW — by — the — Commissi o ne r — may — be 
exchanged or replaced by the self-insu r er wi t h o ther securities 
of like na t u r e and amount as long as the self-insu r e r is 
solven t . — No release shall be effec t ua t ed un t il replacemen t 
securi t ies or b o nds of an equal value have been substituted. 
Any sur e ty bond may be exchanged or replaced with another 
sure t y bond tha t mee t s t he requiremen t s o f this Sec t ion, 
provided 30 days advance writ t en no t ice is given t o the 
Commissioner. Wheneve r a self-insur e r ceases to self-insure 
or desi r es to re p lace securities wi t h an acce pt abl e surety b o nd 
or b o nds, he shall so n o ti f y t he C o mmissioner; and may 
r e c o ve r all o r a p ortion o f the securi t ies de po si t ed with the 
Commissioner upon pos t ing in lieu thereof an acce pt able 
special r elease bond issued by a corpora t e su r e t y in an amount 
equal to the t otal value of such secu r ities. The s p ecial r elease 
bond shall cove r all exis t ing liabilities unde r the ac t plus an 
anwun t to cover f uture loss developmen t ; and shall r emain in 
force until such time as all such o bliga t ions under the ac t have 
been f ully discharged. 

Authority G.S. 97-93. 

.0607 APPLICATION - EMPLOYERS 

fa) — Each employer desiring to self-insur e shall make 
applica t ion to the C o mmissioner f or such au t huiily on a foim 
p rescribed by the Commissioner. — This a pp lica t i o n shall be 
filed wi t h the Conunissioner a t leas t 9 days bef or e the 
desired effec t ive da t e o f self-insure r s t a t us. — The ap p lica t i o n 
shall be comple t ed and shall be in llie fuim of a swoin 

s t at e m e n t . Un t il all — requisi t e data has been filed, — an 

a pp lica t ion is incomple t e. 

(b) In addi t ion t o the Filing of the application, com p liance 
with all of the foll o wing is re qui r ed : 

i¥) — The applican t shall pr ovide t he Commissi o ne r wi t h 
certified audited Financial statements for the mos t 
rec e nt reporting p eri o d and th e t w o nex t mos t 
r ecent years including, a balance sheet reporting 
assets, — liabili t ies, — and — equity, — a — sta t emen t — of 
opera t i o ns. — a — s t atemen t — of — cash — fl o ws, — and 
a p plicable no t es t o the Financial s t a t emen t s p re p ared 
on — t h e basis o f gene r ally — accepted accoun t ing 
principles consis t en t ly a pp li e d. 

t¥) S p ecific excess insu r ance — with — ac t uarially 

a p p r o pr iate p olicy limi t s and r e t en t ion shall be 
required f or ea c h a pp lican t . 

tSr) Each — ap p lican t — shaH — have — wi t hin — its — own 

organiza t ion facilities and p e r s o nnel to administer 
and adjus t claims; o r shall c o nt r ac t wi t h a se r vice 
com p any to provide t hese services. 

t4j Each a pp licant shall submit a summaiy of w or ke r s' 

c o m p ensa t ion benefi t s — praid — for — the — htst — three 
calendar years, as well as t otal fu t u re liabili t y of all 

o p en claims. This summary — shaH — indica t e a 

b r eakdown as t o benefi t s p aid f or medical and 
indemni t y. 
t5l Each a pp lican t with 20 o r m o re full-time employees 



shall submi t a certifica t e o r ot he r evidence of safety 
ins p ec t ion, comple t ed befo r e th e a pp lica t ion, t ha t 
c ert ifies tha t all safe t y r equi r ements of the North 
Carolina De p artm e n t o f Labo r have been me t . 

fc) — Only an a p plican t whose em p l o yee base is actuarially 
suffici e nt in numbers and provides an actuarially appropriate 
spreading of r isk and whose to tal fixed ass e ts amount to five 
hundred t h o usand d o llars ($500,000) or mo r e is eligibl e t o 
a pp ly f or au t hori t y to self-insu r e. In considering the financial 
st r ength and liquidi t y o f the applican t to com p ly with the act. 

the C o mmissione r — shaH c o nsid e r the applicant's. 

organizati o nal st r uc t u r e and managemen t backg ro und; profi t 
and — hsss — his t o r y; — source — and — reliability — of — financial 
informa t ion, — com pe nsati o n — tess — histo r y; — numbe r — of 
employees; claims administra t ion; excess insurance; access to 
excess insu r anc e markets; and o ther significant financial 
r ati o s. 

(d) — All financial s t a t ement formulations shall facilitate 
ap p lication of r a t io and tr end analysis. 

fc) Each applican t — shaH — execu t e and — file with th e 

C o mmissi o ne r an ag r eemen t . — which shall be part of t he 
applica t ion, wherein the applican t ag r ees t o fiilly com p ly wi t h 
the ac t and t o de p osi t with t he C o mmissioner cash, acce pt able 
secu r ities, or a sure t y bond issued by a cor p o r a t e sure t y that 
will guaran t ee the applicant's c o m p liance with this Sec t ion 
and wi t h t he a ct . 

(f) — Af t e r conside r ing th e ap p lica t ion and all supportive 
da t a, th e C o mmissi o ne r shall either grant authoriza t ion or 
deny au t h or i z a t i o n and advise the applicant of deficiencies 
tha t consti t u t e the basis f or denial. — If the deficiencies ar e 
r es o lv e d wi t hin 60 days of t he date o f C o mmissione r 's notice, 
auth or iza t i o n shall be granted. 

(g) — The a p plican t shall be g r an t ed additional time to 
r emedy defi c iencies in i t s a pp lica t ion in orde r t o m ee t th e 
r e qui re ments in this S e c t i o n. — A reques t f o r an extension of 
time shall be made in wri t ing by the a pp lican t wi t hin 30 days 

after — n ot ice — o f denial — by — the — Commissioner. If all 

requirements — of this — Sec t ion — have — not — been — met; — the 
a pp lica t i o n shall be wi t hdrawn. 

(h) — Upon mee t ing the r equi r ements of this Sec t ion, an 
a p plican t shall r eceiv e a w r i t ten certificate of au t ho r i t y to 
self-insure. 

Authority G.S. 58-2-40; 97-93. 

.0608 DEPOSITS: BONDS: EXCESS INSURANCE - 
EMPLOYERS 

(a) Each employer shall, on o r b e fo r e the effec t ive date of 
o per ation of its p lan of self-insu r ance, de p osi t with the 
Commissione r , cash o r acceptable secu r i t ies, o r p ost a su r ety 
bond issued by a c orp orate sure t y, in a foiin and amount 
prescribed by the C o mmissioner, bu t such amoun t shall not 
be less t han five hund r ed thousand dollars ($500,000). 

(b) Each — em p loyer. — shaH — maintain — s p ecific — excess 

insu r ance with a limi t of a t least — five — million dollars 
($5,0(X),000). Highe r limits may b e re qui r ed fo r an em p loye r 
•mth — a higher r isk of mul t iple — inju r ies — f r om a singl e 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1258 



PROPOSED RULES 



occu rr ence. The retention underlying s p ecific e xcess p olicies 
shall be the lowes t r e t en t ion g e n e rally available f or em p loye r s 
o f similar size and exposure, bu t may, in t he Commissione r 's 
disc r e t ion, be es t ablish e d a t highe r levels consist e nt with the 
e mploy e r's claims ex p e r ience and financial condition. 

Authority G.S. 58-2-40: 97-93. 

.0609 REPORTS - EMPLOYERS 

(jr) — A repo rt may be submi t ted on othe r than a pr escrib e d 
fuiiii only with the prio r ap pr oval of th e Commission er . The 
d e adlin e s f or filing of p r escribed r e p o rt s are as pr ovided in 
this Sec t i o n. — Re p o r ts other than those wi t h pr esc r ib e d due 
da t es shall be filed a t such t imes t ha t t h e Commissione r 
e stablishes — and; — exce pt — re p orts — r ela t ed — to — financial 
impairment, shall no t be r equi re d to be filed withou t 30 days 
prior w r itten no t ic e from t he Commissione r . 

(b) C op ies of all final p ay r oll r e p ons show i ng p ay r olls by 
a pp ro pr ia t e classification shall be filed. 

(ci Each — em p loye r — shaH — pr om pt ly — r e p o rt — to — the 

Commissio n e r changes in the names and addresses of the 
businesses i t self-insu r es o r intends to s e lf-insur e , as well as 
changes in i t s business struc t ure, including its divisions, 
subsidiari e s, and in ter nal o r ganiza t ion. — Any such chang e 
shall be r e por ted in w r i t ing to th e Commissione r within t en 
days aft er th e e ff e c t ive date of t he change. Appropria te 
endo r semen t s t o su r ety bonds or exc e ss insu r ance p olicies, o r 
b o th, t ha t s pe cify any addi t ional named insu r eds shall be filed 
wi t hin 9 days of the effec t ive date of t he chang e . Bonds of 
cove r ages or cove r no t es p roviding fo r a t leas t 9 days 
cove r age shall be filed wi t hin 30 days af t e r the effec t ive da t e 
o f the change. 

fth — Each em p loy e r shall submit a s t a t emen t of financial 
c o ndition mee t ing t he cri t eria es t ablished in t his Section 
within 180 days following the clos e o f its fiscal year. 

fe) — Eve r y employer shall submi t on an ajuiual basis a 
r e p o rt f ro m a qualifi e d actua r y, of ou t s t anding wo r ke r s' 
com pe nsa t ion liabilities fo r e ach fund yea r . Such r e p o rt shall 
show liabili t ies, excess car r ie r and o t he r qualifying credits, if 
any. and ne t r e t ained liabili t ies. 

tf) — All employe r s shall maintain such p ay r oll re c or ds t ha t 
are necessa r y to com p lete and ve r i f y the accu r acy of the 
annual self-insu re rs payroll r e p o rt . 

t^ — Summa r y ' loss r e por t s formatted by classifications as 
p rescribed in t he uni t s t a t is t ical plan of t h e p rincipal work e rs' 
com pe nsation r ating organization in No rt h Carolina shall be 
filed as r equi r ed by t he Commissioner. 

Authority G.S. 58-2-40; 58-2-145; 97-93. 

.0610 APPLICATION - GROUPS 

t^ A pp lication — may — be — made — to — pr ovid e — wo r k er s' 

compensation cove r ag e fo r a g ro u p in acco r dance with the 
terms of an indemni t y agr ee men t . Ap p lications shall be filed 
with the Commissioner at leas t 9 days b e fo r e the desi r ed 
effectiv e da t e of self-insur e d s t a t us. — The a pp lica t ion shall 
co n t ain answers to all questions pr o p ound e d and shall be in 



the form of a swo r n statement. — Until all r equested da t a has 
been filed, an a pp lication is incomplete. 

(b) The a pp lication shall include the following. 

t+) a co p y of the bylaws of the p r o p osed group; 

f2j an individual a p plication of each member of the 

grou p ap p lying fo r c o ve r age in the g r ou p on th e 
inc ep tion date of t he g r ou p with a cur r en t financial 
s t a t emen t of the member; 

f3^ a cu rr en t — ce rt ified — financial — statemen t of each 

g r ou p , including a t a minimum, a balance sheet 
r e p o rt ing assets, liabili t ies, and su rp lus, a statement 
of op e r ations, a statemen t of cash flows, and a 
s t atement showing the combined su rp lus o r equity 
of all — membe r s applying fo r coverage on the 

incep t ion da t e of th e g r ou p . Such combined 

su rp lus o r equity shall be an amount tha t es t ablish e s 
the — financial — strength — and — liquidity — of — the 
businesses; 

f4) evidence of the financial abili t y of the group to 

mee t its obliga t ions unde r the act; 

tfr) a — com p osit e — listing of t he — es t imated — standard 

pr emium — to — be — develo p ed — for — eaefi — member 
individually and in t o t al as a group. — Payroll da t a 
fo r each of the three preceding years shall be 
furnished by r isk classifica t ion; 

t6j documented ag ree men t by each m e mber to pay to 

t he grou p no t less than 25 p e r cen t o f estimated 
annual manual pr emium no t la t e r t han the initial 
day of cove r age affo r ded by t he group; 

ff) a coiifiimatioii of any r equi r ed e xcess insu r ance 

unde r w r itten by an au t ho r i z ed insurer; 

(8) designation of the ini t ial tr ustees o r adminis t rator, 

o r both; 

(9) pr oof of a fidelity bond, issued by an authorized 

insu r e r , cov e ring th e g r oup administ r a t o r in a fuiiii 
p rovided by the Commissione r and an amount 
c o mmensu r at e with t he risk ; 

t+&) an — ind e mni t y — ag ree m e n t — join t ly — and — severally 

binding the g r oup and each member t hereof to 
com p ly with the pr ovisions o f t he act and pay 
obligations imposed by t he ac t ; 

(44i a — b r eakdown — of — aH — pr ojected — administ r a t ive 

e x p enses fo r th e fund year in dollar amount and as 
a — p e r centage — of the — estima t ed — annual — manual 
pr emium ; 

i¥i) pr o o f pr ovided by t he tr us t ees, sa t isfac t o r y t o the 

Commissione r , that the em p loyees base is sufficient 
in numbe r s and pr ovides an a ppr o pr iate s p reading 
of risk; 

tiS-) pr oof, sa t isfacto r y to t he Commissione r , t ha t either 

th e a pp licant has wi t hin i t s own o r gani z a t ion ample 
facili t ies and com p etent p e r sonnel t o se r vic e i t s 
own pr og r am with r es p ect to unde r w r iting matte r s, 
claims adjusting, and industrial saf e ty enginee r ing; 
or tha t t he ap p lican t will cont r act with a s er vic e 
company to pr ovid e th e s e se r vices and t he r e p o rt ing 
of loss data to th e Commissione r . — If any p lan 



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PROPOSED RULES 



servicing — ts — to — be — done — by — the — applican t , 

biographies — of — those — p e r s o ns — who — wtH — be 

responsible f o r oi performing such functi o ns shall 

be — submit t ed — to — the — Conuiiissioner — wtth — the 

applicati o n; 

\Wi — a — Icttei — of — assen t — s t ipulating — the — applican t 's 

acce pt ance of membership s t a t us in the N o rth 

Cai r) lina Self-Insu r ance Guaran t y Ass o ciati o n under 

Article 4 of the ac t . 

iX) — After considering the a pp lica t ion and all suppo rt ive 

data, the Commissione r shall eithe r gran t au t h or iza t ion or 

deny authorizati o n and infuiiu the a pp lican t o f deficiencies 

that cons t i t ute the basis f or denial. — If the deficiencies are 

res o lved within 60 days af t e r t he Commissi o ner's n o tice, 

authorization shall be gran t ed to t he a pp lican t . 

(d) — The applicant shall be gran t ed additional t ime t o 
remedy t he deficiencies in i t s applica t ion in orde r to mee t t he 
requiremen t s o f this Secti o n. — A request f or an extension of 
time .shall be made in w r iting by the a pp lican t within 30 days 

after — no t i c e — of denial — by — the — Commissi o ne r . If all 

requirements — of this — Sec t i o n — have — not — been — met; — the 
applica t ion shall be wi t hd r awn. 

fr) — Upon mee t ing t he r e quirements o f t his Sec t ion, t he 
applicant shall r eceive a w r i tt en certifica t e o f auth or i t y to 
self-insure. 

Authority G.S. 58-2-40; 58-2-145; 97-93. 

.0611 DEPOSITS: BONDS: EXCESS INSURANCE - 
GROUPS 

fa) — Each gr o up shall de po sit wi t h the C o nunissioner. n ot 
la t er t han the effec t ive da te o f c o ve r age, cash or acceptable 
secu r ities, o r po s t a sure t y b o nd issued by a corpora te sure t y, 
in an am o un t e qual to t en p ercen t o f the gr o up's tot al annual 
premium, bu t n ot less t han six hund r ed thousand d o llars 
($600,000). If it is ac t uarially det e rmined, the C o mmissi o ne r 
shall r equire a su r e t y bond o r securi t y dep o si t in excess of six 

hundr e d thousand d o llars ($600.000). ac t uarially 

commensura t e wi t h t he r isk o f t he g r oup. 

(b) — The amoun t o f th e secu r i t y d epo si t or bond r equi r ed 
shall be determined at least annually by t he Commissioner 
based on da t a submit t ed by the group to the Commissi o ne r . 

tc) — Each g r ou p shall main t ain s p ecific excess insurance 
wi t h a limit of a t leas t five million dollars ($5.0(X).000). 
Groups comprising businesses wi t h high risks of multi p le 
inju r ies f r om single o ccurrences shall main t ain higher limits, 
ac t uarially commensu r ate wi t h t he r isks involved. — With 
r espec t to specific excess insu r ance, a group's r e t en t i o n shall 
be the lowest re t ention gene r ally available f o r groups with 
similai - ex p osu r es and amiual pr emium; bu t the Commissioner 
shaH — r equi r e highe r levels of specific excess insurance 
consis t en t with the g r ou p 's claims ex p e r ience and financial 
c o ndi t ion. 

Authority G.S. 58-2-40; 97-93. 

.0612 REPORTS - GROUPS 



fa) — R eport s as t o finajicial condition, p ay r oll r eco r ds, 
c o v e rage, accident experience, compensation p ayments, and 
other re po rts shall be filed wi t h t he Commissioner as follows: 

f+) Each g ro up shall file with t he Commissioner an 

annual financial statemen t in accordance wi t h G.S. 
58-2-165. 

f2) Eve r y — g r ou p — shaH — submit — with — its — financial 

statemen t a re p o rt f r om a qualified actuaiy of 
outs t anding workers' compensa t ion liabilities for 
e ach fund year. — The r e p ort shall show liabilities, 
excess cai ' rier and oth er quali f ying credits, if any, 
and ne t re t ained liabilities. 

(3) Summary loss r e p oiis, foi matted by classifica t ions 

as p rescribed in the uni t sta t istical plan of th e 

pr inci p al w or ke r s' com p ensa t ion r a t ing 

o r ganization in N ort h Car o lina, shall be filed. 
(b) — The failu r e or r e f usal of any g r ou p to file t he r e p orts 
sp e cified in Parag r a p h (a) of this Rule wi t hin the t ime limits 
prescribed by this Sec t ion o r by any p rovision of the act may 
b e g r ounds f o r rev o ca t i o n, sus p ension, or non r enewal of the 
auth o rity t o self-insure. 

(c) Eve r y g ro u p member shall n ot i f y the g r ou p to which i t 
belongs o f any changes in the names, add r ess e s, s t ruc t u r e, or 
c o m po si t ion o f any businesses or subsidiaries t ha t p artici p ate 
in t he g ro u p . Eve r y g r ou p member shall noti f y t he g r ou p of 
any additi o ns or dele t ions of t he businesses o r subsidiaries 
par t icipa t ing in t he g r oup, including changes in majo r i t y 
ownership in t eres t in any busin e ss o r subsidiary t ha t is 
c o v er ed or t ha t will b e c o ve r ed by t he group. — All such 
changes shall be re p orted to the group wi t hin t en days af t er 
th e effective da t e of t he change. U p on recei pt of such no t ice, 
each g ro u p shall n ot ify th e Commissioner, in w r i t ing, of such 
rep o rted changes. 

Authority G.S. 58-2-40; 58-2-145; 58-2-165; 58-2-171; 
97-93. 

.0613 GROUP RESPONSIBILITIES 

(a) The tr us t ees of each grou p shall cause to be ado pt ed a 
s e t o f bylaws or shall en t e r int o a tr us t ag r eemen t tha t 
g o verns the opera t ion of the grou p . — These bylaws o r t r us t 
ag re emen t shall contain, but no t be limited to. the following 
subjec t s : 

t+) qualifications f or g r ou p memb er shi p , — including 

unde r w r i t ing conside r ations ; 

(3) t he me t hod f or selec t ing the t r ustees, including the 

t e rm of offic e , 

(3) the meth o d fo r amending the bylaws and plan of 

op e r a t ion: 

f4) t he me t hod fo r establishing and main t aining the 

g r ou p , which has pr eviously b ee n a p proved by the 
Commissione r in w r iting. 
(b) — Each g r ou p shall file a co p y of th e cu rre nt bylaws. 
tr ust ag r eemen t . — and re quired wri t ten p olicies with the 
Commissione r . — Any changes in bylaws, t r ust ag ree m e nt, o r 
w r itten p olicies shall be filed wi t h the Commissione r no la t e r 
t han 30 days p rior to the date of becoming effective. — The 



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1260 



PROPOSED RULES 



Commissioner may o r de r th e group to rescind o r revoke any 
bylaw or p olicy if it is in violation of this Sec t ion or any 
othe r a p plicable law or administ r ative r ule. 

fcj — A trus t ee shall no t be an owner, of f ice r , o r em p loyee 
of a se r vic e com p any. — T r ustees may delegate ministe r ial 
autho r i t y f o r membe r shi p app r oval to such p e rson as they 
select, p r ovided that pe r son is not an owner, office r , o r 
e mployee of any seiTicc com p any. 

Authority G.S. 97-93. 

.0614 ADMISSION AND TERMINATION OF 
GROUP MEMBERS 

ftd — Af t e r t he ince pt ion date of a grou p , pr os p ective new 
members — of a — g r ou p — shaH — submit — an — a pp lica t ion — for 
membe r ship t o t he t r ustees or the g r ou p administrato r , on a 
form a p p r oved o r presc r ibed by th e Commissioner. — The 
t iTis t ees or administ r ato r may app r ov e the a pp lication fo r 
membe r ship pu r suant to th e bylaws of the g r ou p . — The 
a pp lica t ion fo r membershi p shall t hen be filed with t he 
Commissi o ne r . — M e mbe r shi p shall tak e e ffec t aft er a ppr oval 
by tlic group. Membe r s shall r e c e ive a ce r tifica t e of cove r age 
f r om the t rustees on a form acce p table t o the Commissione r . 

tbf — Individual members may e lec t t o t e rminate their 
p ar t ici p ation in a g r ou p and may be subjec t to cancellation by 
th e g r ou p p u r suan t to the bylaws of the grou p . — However, 
such termination or cancellation shall no t take p lace fo r a t 
l e as t t en days afte r the g r ou p has no t ifi e d the Commissione r 
o f the inten t to cancel. — Not l e ss than 30 days' notic e shall be 
given t o a m e mbe r p rior to any cancella t ion by the g r ou p 
e xc ept in t he case of non- p aym e nt of pre mium, in which cas e 
cancellation may b e effected afte r ten days' notice. 

Authority G.S. 97-93. 

.0615 PAYMENT OF DIVIDENDS BY GROUP 
FUNDS OR ASSOCIATIONS 

No g r oup fund o r associa t ion c r eated unde r this Section 
shall mak e any p aym e n t of dividends o r re turn fund surplus 
to its memb er s withou t fi r st obtaining writt e n p e imission 
f r om t h e Commissioner. 



Authority G.S. 58-2-40: 58-2-145; 58-30-60; 97-93; 97-136. 

.0617 GROUP ASSESSMENTS, DISCLOSURE, 

DEVIATIONS, AND DIVIDENDS d 

(a) Each g r ou p shall file a p lan with the Commissioner that ^ 
e x p lains its pr oc e du r e fo r assessmen t o f i t s members. — The 
g r ou p shall file the p lan within 60 days afte r obtaining 
autho r ity to s e lf-insu re . 

(tr) — The g r ou p 's t r ustees or adminis tr ato r shall notify the 
Commissione r no less than 60 days befo r e an assessment. 

(c) The Commissioner shall im p ose assessmen t s on group 
membe r s if t he t r ustees o r adminis t rato r fails to take action lu 
co rr ect fina n cial im p airment o r insolvency. 

ttf) Ev er y — g r oup th r ough i t s t r ustees. — administrator, 

s er vicing com p any, ag e nts, o r othe r re p resen t a t ives shall 
r equi r e — each — membe r — ap p licant. — befo r e — approving — the 
a pp lication t o acknowledge in w r iting that the applicajn has 
re c e iv e d the following : 

til A document disclosing t ha t the membe r s of th e 

g r ou p are jointly and seve r ally liable fo r claims of 
the g r ou p . 

t2) A co p y of the g r ou p 's assessmen t plan t hat has be e n 

fil e d with and ap p roved by t he Commissioner under 
Pa r ag r a p h (a) of this Rul e . 

t^ Th e amount of s p ecific and agg r egate stop loss or 

excess insu r ance o r r einsurance car r ied by — the 
g r ou p , the amoun t and kind of r isk r e t ained by th e 
grou p , and th e nam e and r a t ing o f t he insurer 
pr oviding the sto p loss o r excess insu r anc e o r a 
reinsurance. ■ 

f4i An o pp o rt unity to re c e iv e a co p y of o r to ins p ec t 

t he p olicy desc r ibed in Sub p aragraph (d)(3) of this 

p,,l n 

Kuie. 

( e ) P r o p osed d e viations shall b e fil e d by a g r ou p wi t h t h e 
Commissione r in w r iting a t leas t 60 days before the beginning 
of th e g r ou p 's fund y e ar. 

tf) — G r ou p dividends shall b e declared in acco r dance wi t h 
G.S. 50-8-25(b). 

tg) A group may continue to use all deviations or 

discoun t s fil e d and a ppr oved fo r its use until they have been 
disa ppr oved by the Commission er . 



Authority G.S. 58-2-40; 97-93(b). 

.0616 INSOLVENCY OR HAZARDOUS 
HNANCIAL CONDITION 

Fo r t he purposes of G.S. 58-2-145(0. a g r ou p fund is 
unable t o mee t i t s obligations with r es p ec t to known claims 
and r easonably an t ici p ated claims o r to p ay oth er obligations 
in the normal cou r se of business when it has a negative g r ou p 
fund sur p lus. — A negative grou p fund sur p lus is a financial 
p osi t ion o f a g r ou p fund in which the assets of a g r ou p fund 
are less than i t s liabilities. — A g r ou p fund tha t has a negative 

g r ou p — ftmd — su rp lus — rs — insolven t . in — addition. — the 

Commissioner shall conside r th e s t anda r ds or facto r s list e d in 
G.S. 58-30-60(b) in determining if a grou p fund is in a 
hazardous financial condition. 



Authority G.S. 58-2-40; 58-2-145; 58-8-35; 58-30-60; 58- 
36-30; 97-93; 97-136. 

SUBCHAPTER IIC - ANALYSIS AND 
EXAMINATIONS 

SECTION .0100 - GENERAL PROVISIONS 

.0108 DIVIDENDS TO POLICYHOLDERS: 
DEPARTMENT INTERPRETATION 

The — No rt h Carolina Gene r al — Statutes pr ovid e that no 
dividend shall be p aid unless fai r and equi t able and fo r the 
b e s t int ere s t of th e com p any and its p olicyholde r s. — GtSt 
58-8-25 is inte rpr eted by the De p artmen t t o mean that no 
dom e stic stock o r mutual insu r ance com p any may declare 



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PROPOSED RULES 



dividends to i t s po licylioldcis Lxcept fmui the eai - ntd sur p lus 
of the company — as reflec t ed in the company's annual 
statement filed with the Coimiiissioner o f Insurance and 
prepared in accordance with s t atut or y accoun t ing practices. 

Authority G.S. 58-2-40; 58-8-25. 

.0109 DIVroENDS TO STOCKHOLDERS: 
DEPARTMENT INTERPRETATION 

G.S. 50-7-130 is inter p re t ed by t he Department to mean 
that no domes t ic st o ck insurance company may declare 
dividends to i t s s to ckholde r s excep t fiom the earned su rp lus 
of t he company as reflected in t he c o m p any's annual 
stat e ment filed with t he Commissioner and pre p ared in 
accordance with s t a t utory accounting prac t ices. P ro vided, 
however, tha t stock dividends to st oc kholde r s o u t of paid in 
and con t ribu t ed sur p lus will be permit t ed on a case by case 
basis de p ending on the necessity f or a c o mpany t o dis t ribu t e 
such s to ck dividend. 

Authority G.S. 58-2-40; 58-7-130. 



such an order that information can be readily ascertained by 
the department upon a market conduct examination. 

(b) Every agency, agent, broker, or producer of record 
shall maintain a file for each policy sold, and said the file 
shall contain all work papers and written communications in 
his or her possession pertaining to the policy documented 
therein. These records shall be retained for not less than 
three years. 

Authority G.S. 58-2-40(1); 58-2-50; 58-2-131; 58-2-132; 58- 
2-133; 58-2-145; 58-2-185; 58-2-190; 58-2-195; 58-2-200; 
58-7-50; 58-20-30; 58-21-40; 58-21-75; 58-22-20(6); 58-23- 
25; 58-24-135; 58-27-10; 58-39-70; 58-48-65; 58-49-55; 58- 
56-16; 58-62-66; 58-63-20; 58-64-55; 58-65-105; 58-67-100. 

.0003 COMPLAINT RECORDS 

Each insurer or its agents shall maintain or cause to be 
maintained a record of all written complaints listing the 
department file number, the name of the insured, the nature 
of the complaint, the department subject to the complaint, the 
policy or claim number of the insured, and the disposition of 
the complaint. This record shall be retained for at least three 
years. 



Notice is hereby given in accordance with G.S. 150B-21.2 
that the NC Department of Insurance intends to amend 
rules cited as 11 NCAC 19 .0002 - .0004, .0006. Notice of 
Rule-making Proceedings was published in the Register on 
November 3, 1997. 



Authority G.S. 58-2-40(1); 58-2-50; 58-2-131; 58-2-1 32;58- 
2-133; 58-2-145; 58-7-50; 58-20-30; 58-21-40; 58-21-75; 
58-22-20(6); 58-23-25; 58-24-135; 58-27-10; 58-39-70; 58- 
48-65; 58-49-55; 58-56-16; 58-62-66; 58-63-20; 58-64-55; 
58-65-105; 58-67-100. 



Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 10:00 a.m. on 
February 5, 1998 at the Dobbs Building, 3'" Floor Hearing 
Room, 430 N. Salisbury St., Raleigh, NC. 

Reason for Proposed Action: These Rules specify additional 
documentation that must be maintained by insurers and 
agents, add language applicable to HMOs, and establish a 
finite response time for requests for records. 

Comment Procedures: Written comments should be sent to 
Louis Belo, Market Examinations, HI Seaboard Avenue, 
Raleigh, NC 27604, (919) 733-0055. 



.0004 POLICY RECORDS 

Each insurer or its agents shall maintain or cause to be 
maintained a record of all policies so as to show clearly the 
policy period, basis for rating, and if terminated, 
documentation supporting policy terminatio n by the insurer 
or policyholder, and accounting records indicating return 
premium amounts, re t urn premium amoun t s, if a pp licable. 
These records shall be retained for at least three years. 

Authority G.S. 58-2-40(1); 58-2-50; 58-2-131; 58-2-132; 58- 
2-133; 58-2-145; 58-2-190; 58-2-195; 58-7-50; 58-20-30; 
58-21-40; 58-21-75; 58-22-20(6); 58-23-25; 58-24-135; 58- 
27-10; 58-39-70; 58-48-65; 58-49-55; 58-56-16; 58-62-66; 
58-63-20; 58-64-55; 58-65-105; 58-67-100. 



Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 19 - MARKET CONDUCT DIVISION 

.0002 MAINTENANCE OF RECORDS 

(a) Every insurer licensed to do business in this State shall 
maintain for not less than three years all records, books, 
documents, and other business records that are required by 
this Chapter and by G.S. 58. This data shall be maintained in 



.0006 RECORDS REQUIRED FOR EXAMINATION 

(a) Market conduct examinations of property and casualty 
insurers generally include review of the following areas of 
operation: 

(1) Company overview: history and profile, company 
operations and management, and certificates of 
authority; 

(2) Policyholder treatment: consumer complaints; 

(3) Marketing: policy forms and filings, sales and 
advertising, agency management; 

(4) Underwriting and rating practices: pr iva t e 
p assenge r automobil e . homeowners. and 



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PROPOSED RULES 



comjiicrcial lines (multi- p eril, automobile, workers, 
toii ' ipcnsation). — adv er s e — unde r w r iting — decisions 
(cancellations. — nonrenewals. — and — declina t ions) : 
personal lines and commercial lines; all 
terminations (cancellations and nonrenewals) and 
declinations or rejections; 
(5) Claims practices: organization and procedures, 
closed with payment, closed without payment, total 
loss settlements (salvage), and subrogation, and 
litigation. 

(b) Market conduct examinations of life and health 
insurers generally include review of the following areas of 
operation: 

(1) Company overview: history and profile, company 
operations and management, and certificates of 
authority; 

(2) Policyholder treatment: consumer complaints, 
nonforfeiture benefits (policy loans, cash 
surrenders, extended term and reduced paid-up); 

(3) Marketing: policy forms and filings, sales and 
advertising, and agency management; 

(4) Underwriting and rating practices: life (individual 
and group), health (individual and group), annuities 
(individual and group); declinations (individual and 
group); 

(5) Claims practices: life (individual and group), health 
(individual and group) annuities (individual and 
group). 

(c) Market conduct examinations of fuU service health 
maintenance organizations (HMOs) and single service HMOs 
generally include review of the following areas of operation: 

(1) Company overview: articles of incorporation, 
bylaws, history and profile, company operations 
and management, risk management policies, and 
data protection plan; 

(2) Provider delivery systems: provider manual, 
provider contracting policies and procedures, 
provider directories. and availability and 
accessibility standards and monitoring reports 
related to these standards; 

(3) Management agreements: management agreements, 
intermediary contracts, intermediary certifications. 
and provider agreements; 

(4) Utilization management: utilization management 
plan. utilization management policies and 
procedures. annual utilization management 
certifications, utilization management monthly 
telephone reports, precertification records, and 
appeals of noncertification records; 

(5) Ouality management: quality management plan, 
quality management policies and procedures, 
quality management committee minutes, quality of 
care complaints, and quality management annual 
program evaluation: 

(6) Provider credentialing: credentialing plan, 
credentialing policies and procedures, and 
credential files; 



(7) Claims practices: policies and procedures, reports 
of processed and denied claims, claims records: 

(8) Policyholder treatment: member services' policies 
and procedures, member services complaint logs, 
member complaint records, member services 
monthly telephone reports, late enrollment 
guidelines, and member materials: 

(9) Marketing: agent and broker files, agent 
appointment and termination listings, marketing 
training materials, sales and advertising materials. 
and policy forms and filings; 

(10) Underwriting and rating practices: underwriting 
manual, annual rate filings, overview of rate 
development for each filed methodology, and 
underwriting files; 

(11) Oversight of delegated functions: oversight 
committee activity, oversight monitoring tools, and 
audits. 

(d) Market conduct examinations of managed care health 
insurers other than health maintenance organizations generally 
include review of some or all of the areas addressed in 
Paragraphs (b) and [c] of this Rule. 

tr) le] Specific records relative to these areas of operations 
will usually be requested by prior written notification or pre- 
examination conference. These records shall be made 
available to the Mark et Conduct Division examinations staff 
u p on ar r ival, when the staff arrives at the insurer's office. 

t&i UQ Additional records shall be made available on the 
date of arrival if the department has requested that stich those 
records be made available for the examination. Additional 
records, not previously requested, may be required during 
and after an examination. Appropriate work space and 
equipment shall be provided to the examiners to expedite the 
examiners' review of the records. 

(g) During a market conduct examination, each insurer 
shall respond to aU formal requests from a department 
examiner for additional data. The insurer shall sign and date 
the data request and return k to the examiner-in-charge with 
any applicable documentation. The data shall be accurate, all 
inclusive, and in the format requested to facilitate the review 
process. 

(h) Records of business that are encompassed by 
Paragraphs (a), (b). (c). and (d) of Ais Rule shall be 
maintained for not less than three years. 

Authorm- G.S. 58-2-40(1); 58-2-50: 58-2-131: 58-2-132; 58- 
2-133; 58-2-190; 58-2-195; 58-7-50; 58-20-30; 58-21-40; 
58-21-75; 58-22-20(6); 58-23-25; 58-24-135; 58-27-10; 58- 
39-70; 58-48-65; 58-49-55; 58-50-56, 58-50-61. 58-50-62. 
58-56-16; 58-62-66; 58-63-20; 58-64-55; 58-65-105; 58-67- 
10; 58-67-11; 58-67-100. 



N 



TITLE 12 - DEPARTMENT OF JUSTICE 

otice is hereby given in accordance with G.S. 150B-21 .2 
that the N. C. Private Protective Sendees Board intends 



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January 15, 1998 



12:14 



PROPOSED RULES 



to adopt rules cited as 12 NCAC 7D .1201 - . 1202. Notice of 
Rule-making Proceedings was published in the Register on 
August 15, 1996. 

Proposed Effective Date: May 11, 1998 

A Public Hearing will be conducted at 2:00 p.m. on January 
30, 1998 at the SBl Conference Room, 3320 Old Gamer Rd., 
Raleigh, NC 27626. 

Reason for Proposed Action: No rules currently exist to 
define "Firearms Instructor Trainers " nor does a rule exist to 
set forth the requirements for becoming a Firearms Instructor 
Trainer. 



m 



audited at least one student certification class of the 
applicant: cind must have audited and assisted in the 
teaching of Firearms Trainers with one or more 
currently certified Firearms Instructor Trainers and 
obtain a written recommendation from that 
Firearms Instructor Trainer: or 
the a pplicant must be currently certified by the 
Private Protective Services Board as a Firearms 
Trainer and have maintained that certification for at 
least five of the last 10 years, and must be currently 
certified as an National Rifle Association Training 
Counselor with Pistol and Shotgun endorsements. 



Authority G.S. 74C-5(1); 74C-5(2). 



Comment Procedures: Written comments concerning this 
rule-making hearing may be submitted within 30 days of this 
publication to W.A. Hoggard, III, Administrator, N.C. 
Private Protective Sen'ices Board, 3320 Old Gamer Road, 
Raleigh, NC 27626. 

Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government finds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 7 - PRIVATE PROTECTIVE 
SERVICES 



Notice is hereby given in accordance with G.S. 150B-21.2 
that the N.C. Private Protective Services Board intends 
to adopt mles cited as 12 NCAC 7D . 1301 - . 1307. Notice of 
Rule-making Proceedings was published in the Register on 
November 15. 1996. 

Proposed Effective Date: January 27, 1999 

A Public Hearing will be conducted at 10:00 a.m. on 
Febmary 27, 1998 at the Holiday Inn, 320 Hillsborough 
Street, Raleigh, NC 27603, Phone: (919) 832-0501. 



SUBCHAPTER 7D - PRIVATE PROTECTIVE 
SERVICES BOARD 

SECTION .1200 - FIREARMS INSTRUCTOR 
TRAINERS 



Reason for Proposed Action: No rules currently exist to 
require continuing licensee education. The Board finds that 
licensees should receive at least 8 hours of continuing 
education per year to maintain professional competence, thus 
further protecting the public healthy, safety, and welfare. 



.1201 DEFINITIONS 

In addition to ti\e definitions set forth in 12 NCAC 70 
.0104. the following definition will app ly to this Section: 



"Firearms Instructor Trainer" is deemed the hi ghest level of 
firearm certification and refers to an individual who will 
teach other firearms trainers how to instruct other instructor 
trainers. 

Authority G.S. 74C-5(1); 74C-5(2). 

.1202 REQUIREMENTS FOR A FIREARM 

INSTRUCTOR TRAINER CERTinCATION 

For any individual to become certified by the Private 
Protective Services Board as a Firearms Instructor Trainer. 
the individual must apply and meet at least one of the 
following two requirements: 

UQ The applicant must be currently certified b^ the 
Private Protective Services Board as a Firearms 
Trainer and have maintained that certification for at 
least five out of the last 10 vears: and must receive 
the written endorsement of at least three other 
currently certified Firearms Trainers who have 



Comment Procedures: Written comments concerning this 
rule-making activity may be submitted within 60 days of this 
publication to W.A. Hoggard, III, Administrator, N.C. 
Private Protective Services Board, 3320 Old Garner Road, 
Raleigh, NC 27626. 

Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 



CHAPTER 7 



PRIVATE PROTECTIVE 
SERVICES 



SUBCHAPTER 7D - PRIVATE PROTECTIVE 
SERVICES BOARD 

SECTION .1300 - CONTINUING EDUCATION 

.1301 STATEMENT OF PURPOSE 

(a) The Private Protective Services Board finds that all 
aspects of life and society are changing rapidly. With 



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changes in the law, technology, and business procedures, a 
licensee cannot render competent services in the private 
protective services profession without continuous education 
and training. 

(b) The Private Protective Services Board finds that 
continuing education will assist licensees engaged in the 
private protective services profession in North Carolina to 
maintain their professional competence, thereby further 
protecting the public health, safety . and welfare. Based upon 
the Board's findings, the following minimum continuing 
education requirements are established for licensees. 

Authority G.S. 74C-5(l): 74C-5(2). 

.1302 DEFINITIONS 

In addition to the definitions set forth in 12 NCAC 7D 
.0104. the following definitions will apply to this Section: 
(1) "accredited sponsor" means an organization whose 
courses are approved and sanctioned for continuing 
education by the Board. 

"continuing licensee education" or "CLE" refers to 
any educational activity approved by the Board to 
be a continuing education activity, 
"credit hour" means sixty minutes of continuing 
education instruction. 

"year" refers to the calendar year after the issuance 
of a new or renewal license, 
"licensee" shall refers to an individual who holds 
one or more of tfie following licenses issued by the 
Board: 
(a) Security Guard and Patrol License: 

Guard Dog Service License: 

Private Investigator License: 

Counter Intelligence License: 

Polygraph License: 

Psychological Stress Evaluator License: 

Armored Car License: or 

Courier Service License. 



01 

01 
01 
£4} 



lb} 
icl 
id] 
i£l 

m 
ui 

ihl 



(4) the identity and qualifications of each instructor. 

(b) To determine if a course will receive sanctioning from 
the Private Protective Services Board, the Board shall 
complete the following review: 

(1 ) The matter will be referred to die Education and 
Training Committee for the appointment of a sub- 
committee that shall review the course under 
consideration. The sub-committee shall consist of 
at least one member of the Education and Training 
Committee, and one industry licensee who has no 
vested interest in the course. Other members of the 
sub-committee may be appointed at tlie discretion 
of tlie Education and Training Committee 
Chairman. 

(2) The sub-committee shall review the course to 
determine if the course is pertinent to tlie industry. 
if the instructors are competent, and if the course 
meets its staled objectives. 

(3) When the sub-committee completes its review, it 
shall report to the Education and Training 
Committee, which will then report the findings 
with a recommendation of acceptance or denial to 
the Private Protective Services Board. 

(c) Upon receipt of the Education and Training Committee 
report, the Private Protective Services Board will determine 
by majority vote if tlie course will be sanctioned for 
continuing licensee education credits. 

Authority G.S. 74C-5(1); 74C-5(2). 

.1305 NON-RESIDENT LICENSEES AND CLE 
CREDITS 

A non-resident licensee shall obtain the required continuing 
licensee education credits as set forth in 12 NCAC 70 .1303. 
If a non-resident licensee resides in a state that has a 
reciprocity agreement with North Carolina, courses offered in 
the state of residence may be considered for sanctioning by 
the Board on an individual basis. 



Authority G.S. 74C-5(1): 74C-5(2). 



Authority G.S. 74C-5(1): 74C-5(2). 



.1303 REQUIRED CLE HOURS 

Each licensee shall complete at least eight hours of 
continuing licensee education during the year. If a licensee 
holds more than one license, lie shall be required to take only 
eight hours of CLE credits. 

Authority G.S. 74C-5(}>; 74C-5(2). 

.1304 ACCREDITATION STANDARDS 

(a) CLE courses may obtain the sanction of the Private 
Protective Ser\'ices Board by submitting the following 
information to tlTe Board for consideration: 

(1) the nature and purpose of the course: 

(2) the course objectives or goals: 

01 the outline of tlTe course, including the number of 
training hours for each segment: and 



.1306 RECORDING AND REPORTING CLE 
CREDITS 

Each licensee shall be responsible for recording and 
reporting continuing licensee education credits to the Board at 
the time of license renewal, and for each course taken such 
report shall include a certificate of course completion that is 
signed by at least one course instructor, indicates the name of 
the licensee that completed the course, indicates the date of 
course completion, and indicates the number of hours taken 
by the licensee. 

Authority G.S. 74C-5(1): 74C-5(2). 

.1307 NON-COMPLIANCE 

If a licensee fails to comply with the Rules of this Section. 
his license shall not be renewed. 



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Authority G.S. 74C-5(1); 74C-5(2). 



TITLE ISA - DEPARTMENT OF ENVIRONMENT 
AND NATURAL RESOURCES 

Notice is hereby given in accordance with G.S. 150B-21.2 
that the Department of Environment and Natural 
Resources intends to amend rules cited as 15A NCAC IJ 
.0401 - .0402. Notice of Rule-making Proceedings was 
published in the Register on November 3, 1997. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 11:00 a.m. on 
February 3, 1998 at the Archdale Building. 

Reason for Proposed Action: House Bill 515 amended G.S. 
159G-10 which governs the priority criteria for funding 
wastewater and water supply projects through the State's 
Clean Water Revolving Loan and Grant Program. It requires 
that the agency include the existence of a comprehensive land- 
use plan when prioritizing construction projects for funding. 

Comment Procedures: Any person or organization desiring 
to make oral comments at the hearing should register to do so 
at the hearing. Statements will be limited to 10 minutes, and 
one typewritten copy of any such statement should be 
submitted to the panel conducting the hearing. Any 
additional comments on the proposed rule amendment should 
be forwarded to the Division of Water Quality by February 
16. 1998. 



the Division of Environmental Health will give consideration 
to the following priority factors: 

(1) Primary consideration shall be given to the public 
necessity of the project in promoting the public 
health, safety, and welfare and in providing or 
having the potential of providing the greatest 
benefit to the greatest number of persons. 

(2) Consideration shall also be given to the eligibility 
of the proposed project for federal funding; the 
compatibility of the proposed project with the 
state's general program of water supply and water 
pollution control, and any applicable regional 
planning program; the population to be served; the 
fiscal responsibility of the applicant; and the need 
of the applicant for funding assistance. 

(3) Additional consideration shall be given to eligible 
units of government which demonstrate practices 
for the conservation of wate r , water or which have 
a comprehensive land-use plan. 

(c) The categorical elements and items to be considered in 
assigning priorities to each application for which loan or 
grant funds are sought, and the points to be awarded to each 
categorical element and item are set forth in Sections .0500, 
.0600 and .0700 of this Subchapter. Unless otherwise 
specifically indicated, if an item for an element of a particular 
category applies specifically to the application under 
consideration, the application will be awarded the number of 
points assigned to that item for the categorical element; and if 
no item applies, no points will be awarded the application for 
that particular element. 

Authority G.S. 159G-10; 159G-15. 



Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 1 - DEPARTMENTAL RULES 

SUBCHAPTER IJ - STATE CLEAN WATER 
REVOLVING LOAN AND GRANT PROGRAM 

SECTION .0400 - CRITERIA FOR EVALUATION OF 
ELIGIBLE APPLICATIONS 

.0401 GENERAL CRITERIA 

(a) During the review periods set forth in Section .0800 of 
this Subchapter all eligible applications shall be assigned a 
priority for loan or grant funds. Priorities shall be assigned 
by the Environmental Management Commission for 
applications for project loans or grants for wastewater 
treatment works and wastewater collection systems and by the 
Division of Environmental Health for applications for project 
loans or grants for water supply systems. 

(b) In determining the priority to be assigned each eligible 
application, the Environmental Management Commission and 



.0402 CRITERIA FOR WATER CONSERVATION 
AND COMPREHENSIVE LAND USE 
PLANNING 

(a) Applicant may receive a maximum of 15 bonus points 
for meeting the following criteria as applicable: 

(1) Applicant demonstrates it has a continuing I/I 
program in its wastewater sewer 

maintenance program. (Wastewater Projects 
Only) 5 points 

(2) Applicant demonstrates it has a continuing water 
loss program in its water supply 

system program. (Water Supply Projects 

Only) 5 points 

(3) Applicant has a continuing program of water 
conservation education and information. 5 points 

(4) Applicant demonstrates it has established a water 
conservation incentive rate structure; created 
incentives for new or replacement installation of 
low flow faucets, shower heads, and toilets; or has 
a water reclamation or reuse system. 5 points 

(b) Applicant may also receive a maximum of 10 bonus 
points for meeting the following criteria: 

(1) Applicant demonstrates that it has adopted a 
comprehensive land-use plan that meets the 



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PROPOSED RULES 



requirements of G.S. 155H. 
160A. Article 19. or applicant 



Article 18 or G.S. 
is a local 



government unit that is not authorized to adopt a 
comprehensive land-use plan but that is located in 
whole or in part in another local government unit 
that has adopted a comprehensive 
land-use plan, and that the proposed project is 
consistent with the plan. 2 points 

(2) Applicant demonstrates that the comprehensive 
land-use plan exceeds the minimum state standards 
for the protection of water resources. 2 points 

(3) Applicant demonstrates that actions have been taken 
toward implementation of tlie comprehensive land- 
use plan. These actions may include the adoption 
of a zoning ordinance or any other measure that 
significantly contributes to the implementation of 
the comprehensive land-use plan. 6 points 

Auihorin G.S. 159G-I0: 159G-15. 

******************** 

Notice is hereby given in accordance with G.S. 150B-21.2 
thai the Environmental Management Commission 
intends to adopt rules cited as 15A NCAC 2R .0101 - .0102. 
.0201 - .0205. .0301 - .0302. .0401 - .0403: and repeal rules 
cited as 15A NCAC 2R .0501 - .0504. Notice of Rule-making 
Proceedings was published in the Register on July 15. 1997. 

Proposed Effective Date: August 1. 1998 

A Public Hearing will be conducted at 7:00 p.m. on the 
following dates and locations: 

February 5, 1998 

Auditorium 

Catawba Valley Community' College 

2550 Highway 70 SE 

Hickory. NC 

February 10, 1998 

Auditorium 

Lenoir Community College. 231 Highway 58 S 

Kins ton. NC 

Reason for Proposed Action: During the 1996 session of the 
North Carolina General Assembly. Article 21 of Chapter 143 
of the General Statutes was amended by adding sections 143- 
214.8 through 143-214.13. These sections established the 
Wetlands Restoration Program as a non-regulatory statewide 
program for the acquisition, maintenance, restoration, 
enhancement, and creation of wetland and riparian resources 
that contribute to the protection and improvement of water 
quality, flood prevention, fisheries, wildlife habitat, and 
recreational opportunities. The purpose of this rule-making 
initiative is to establish he procedures that will be used to 
implement the Wetlands Restoration Program. 



Comment Procedures: Comments, statements, data and 
other information may be submitted in writing within 30 days 
of the date of publication of this issue of the NC Register. 
Copies of the proposed rules and information concerning the 
rules may be obtained by contacting the Wetlands Restoration 
Program at (919) 733-5083 ext. 358 or by submitting a 
written request to the following address. Written comments 
may be submitted to Ron Terrell, Wetlands Restoration 
Program. Division of Water Quality, PO Box 29535, 
Raleigh. NC 27626-0535. 

Fiscal Note: Rules 15A NCAC 2R .0202 - .0205. .0302, 
.0401 - .0403 affect the expenditure or distribution of State 
finds subject to the Executive Budget Act, Article I of 
Chapter 143 but do not affect local government funds. Rules 
15ANCAC2R .0101 - .0102, .0201, .0301, .0501 - .0504 do 
not affect the expenditures or revenues of state or local 
government finds. None of these Rules have a substantial 
economic impact of at least five million dollars ($5,000,000) 
in a 12-month period. 

CHAPTER 2 - E^^VIRO^fMENTAL MANAGEMENT 



SUBCHAPTER 2R 



- VVTTLANDS RESTORATION 
PROGRAM 



SECTION .0100 - PURPOSE AND DEFINITIONS 

.0101 PURPOSE 

(a) The Wetlands Restoration Program is a nonregulatory 
program to promote the acquisition, maintenance, restoration, 
enhancement, creation and preservation of wetlands and 
riparian area resources that contribute to the protection and 
improvement of water quality, flood prevention, fisheries, 
wildlife habitat, and recreational opportunities throughout 
North Carolina. 

(b) The purposes of the Wetlands Restoration Program are: 

(1) to replace critical functions lost through historic 
wetlands conversion and through current and future 
permitted impacts through the restoration of 
wetland and riparian area functions and values: 

(2) to increase the wetland and riparian area acres, 
functions and values in each of ^he 17 major river 
basins of the state: 

(3) to increase the ecological effectiveness of 
compensatory mitigation and to foster a 
comprehensive approach to environmental 
protection: and 

(4) to provide a consistent approach to address the 
compensatory mitigation requirements associated 
with permits or authorizations issued by the United 
States Armv Corps of Engineers under 33 USC 
i?I344 and certifications issued by the Department 
under 33 USC §1341. 

Authoritv G.S. 143-214.8; 143-214.9. 



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.0102 DEFINITIONS 

The derinilion of aoi: word or phrase used in this 
Subchapter shall be the same as given in G.S. 143. Article 
21. The following words and phrases, which are not defined 
in this anicle. shall be interpreted as follows: 

(1) Compensatory mitigation means the restoration, 
creation, enhancement or preservation of wetlands, 
riparian areas and classified surface waters that is 
required as a condition of permits or authorizations 
issued by the United States Army Corps of 
Engineers under 33 USC §1344 and certifications 
issued by the Department under 33 USC §1341. 

(2) Mitigation bank means a site where wetlands and/or 
other aquatic resources are restored, created, 
enhanced, or in exceptional circumstances, 
preserved expressly for the purpose of providing 
compensatory mitigation in advance of authorized 
impacts to similar resources as defined in "The 
Federal Guidance for tlie Establishment. Use and 
Operation of Mitigation Banks." found in Volume 
60. Number 28 of the Federal Register. November 
28. 1995. 

(3) Non-riparian wetlands means Class WL wetlands as 
described in I5A NCAC 2B .OlOHcKS) whose 
major source of water is precipitation. Wetland 
types generally considered to be non-riparian 
include wet flats, pocosins and ephemeral wetlands. 

(4) Riparian area means areas that do not meet the 
definition of wetlands found at 15A NCAC 2B 
.0202 that are located within 300 feet of any 
perennial or intermittent water body as shown by 
the most recently published version of the United 
States Geological Survey 1:24.000(7.5 minute) 
scale topographic map and/or other site specific 
data. 

(5) Riparian wetlands means Class WL wetlands as 
defined in 15A NCAC 23 .0101(c)(8) whose major 
source of water is ground water or surface water. 
Wetland types generally considered to be riparian 
include freshwater marshes, swamp forests, 
bottomland hardwood forests, headwater forests, 
bog forests, mountain bogs and seeps. 

Authority G.S. 143-214.8; 143-214.9; 143-214.11. 



SECTION .0200 



BASINWIDE RESTORATION 
PLANS 



.0201 PURPOSE AND GOALS 

The purpose of tlie Basinwide Restoration Plans is to 
identify wetlands and riparian areas within each of the 17 
major river basins of the state that have the potential, through 
restoration, enhancement or preservation, to contribute to the 
goals of tlie Wetlands Restoration Program. The overall 
goals of the Wetlands Restoration Program are the protection 
and enhancement of water quality, flood prevention, 
fisheries, wildlife habitat, natural heritage values, and 



recreational opportunities within each river basin. The 
Basinwide Restoration Plans shall be used to guide the 
expenditure of funds from the Wetlands Restoration Fund. 

Authority G.S. 143-214.10. 

.0202 SCHEDULE 

(a) Basinwide Restoration Plans shall be developed by the 
Department for each of the H major river basins in 
accordance with the schedule used by the Department in the 
development of Basinwide Water Quality Management Plans 
beginning July 1. 1997. 

(b) Each Basinwide Restoration Plan shall be reviewed and 
revised every five years. 

Authority G.S. 143-214.10. 

.0203 COMPONENTS 

(a) The Basinwide Restoration Plans for each of the 17 
major river basins shall consist of the following components: 

(1) an assessment of the existing wetlands and riparian 
area resources within each basin: 

(2) an assessment of tlie existing needs of tlie river 
basin as identified in the Basinwide Water Quality 
Management Plans with input from other state and 
federal agencies, local governments, institutions of 
higher learning and non-profit organizations and 
the general public: 

2B £3} identification of degraded wetlands and riparian 

areas that have the potential, if restored or 
enhanced, to contribute to the goals of the 
Basinwide Restoration Plans as outlined in Rule 
.0201 of this Section: 

(4) ecologically significant wetland and riparian areas 
that have the potential, if preserved, to contribute 
to tlie goals of tlie Basinwide Restoration Plans as 
outlined in Rule. 0201 of the Section: 

£51 prioritization of the areas identified in 
Subparagraphs (a)(3) and (a)(4) of this Rule based 
on the area's ability to contribute to tlie specific 
goals of tlie Basinwide Restoration Plans as 
outlined in Subparagraph (a)(6) of this Rule and the 
needs of each river basin as identified in 
Subparagraph (a)(2) of this Rule: and 

(6) each Basinwide Restoration Plan shall outline the 

specific goal to be accomplished through 

implementation of the Basinwide Restoration Plan. 

{b} During the period July 1. 1997 through June 30. 2002. 

the Department may develop and implement Basinwide 

Restoration Plans that include only the following 

components: 

(1) an assessment of tlie existing needs of tlie river 
basin as identified in the Basinwide Water Quality 
Management Plans with input from other state and 
federal agencies, local governments, institutions of 
higher learning and non-profit organizations and 
the general public: 



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PROPOSED RULES 



(2) ideniification of degraded wetlands and riparian 
areas that have the potential, if restored or 
enhanced, to contribute to the specific goals of the 
Basinwide Restoration Plans as outlined in Rule 
.0201 of this Section: 

(3) prioritization of the areas identified in 
Subparagraph (b)(2) of this Rule based on the 
ability to contribute to the goals of the Basinwide 
Restoration Plans as outlined in Rule .0201 of this 
Section and the needs of each river basin as 
identified in Subparagraph (b)(l> of this Rule: and 

(4) each Basinwide Restoration Plan shall outline the 
specific goals to be accomplished through 
implementation of the Basinwide Restoration Plan. 

Authority G.S. 143-214.10. 

.0204 PUBLIC INVOLVEMENT; AVAILABILITY 

(a) The Secretary shall provide interested parties an 
opportunity to review and comment on the proposed 
Basinwide Restoration Plans prior to approval of the plans by 
the Commission. 

(b) The approved Basinwide Restoration Plans shall be 
available for review in tlie offices of the Wetlands Restoration 
Program. Division of Water Quality. 512 North Salisbury 
Street. Raleigh. NC. 27604. Paper and/or electronic copies 
of these plans may be purchased for the cost of reproduction 
of these materials. 

Authority G.S. 143-214.10. 

.0205 APPROVAL 

The Basinwide Restoration Plans shall be submitted to the 
Commission for review and approval prior to implementation 
of the plans. 

Authority G.S. 143-214.10. 

SECTION .0300 - COMPENSATORY MITIGATION 

.0301 GENERAL 

(a) All projects implemented by the Wetlands Restoration 
Program for the purpose of satisfying the compensatory 
mitigation requirements of certifications issued by the 
Department of Environment and Natural Resources under 33 
use §1341: and permits or authorizations issued by the 
United States Army Corps of Engineers (Corps) under 33 
use §1344. shall be consistent with the goals of the 
approved Basinwide Restoration Plans for the appropriate 
river basin. A project is consistent with the Basinwide 
Restoration Plans if tlie project location is identified as a 
priority site or qualifies as a priority site under the approved 
Basinwide Restoration Plan for the appropriate river basin. 

(b) The Wetlands Restoration Program shall play no role 
in the review of certifications issued by tiie Department under 
33 use i$1341: and permits or authorizations issued by the 
United States Army Corps of Engineers (Corps) under 33 



use §1344. The role of the Wetlands Restoration Program 
shall be limited to providing options to satisfy compensatory 
mitigation requirements associated with these permits- 
authorizations or certifications as described in G.S. 143- 
214.8 through 1 43-214.13. 

Authority G.S. 143-214.11; 143-214 12. 

.0302 MITIGATION BANKS 

(a) All prospective sponsors of compensatory mitigation 
banks that initiate the planning and review process after the 
effective date of thfs Rule must provide the Secretary, or the 
Secretary's designee, documentation that the proposed 
mitigation bank is consistent with the approved Basinwide 
Restoration Plan for the appropriate river basin and meets 
requirements of G.S. 214.1 1(f). A mitigation bank is 
consistent with Basinwide Restoration Plans if tfie mitigation 
bank is identified as a priority site or qualifies as a priority 
site under the approved Basinwide Restoration Plan for the 
appropriate river basin. The Secretary shall provide 
comments concerning this documentation through 
participation on the Mitigation Bank Review Team in 
accordance with "The Federal Guidance for the 
Establishment. Use and Operation of Mitigation Banks." 
found in Volume 60. Number 228 of tlie Federal Register. 
November 28. 1995. Approval of tlie Mitigation Banking 
Instrument, described in the above guidance, shall be 
considered as a finding by thie Secretary that the mitigation 
bank is consistent with the Basinwide Restoration Plan. 

(b) Each credit in a proposed mitigation bank must include 
a minimum of one acre of restoration or creation as defined in 
15A NCAC 2H .0506(h)(4). 

Authority G.S. 143-214.11; 143-214.12. 

SECTION .0400 - WT:TLANDS RESTORATION 
FUND 

.0401 PURPOSE 

(a) The purpose of tlie Wetlands Restoration Fund (Fund) 
is to provide a repository for monetary contributions or 
payments and donations or dedications of interests in real 
property. Fund assets will be used to promote the 
restoration, enhancement, preservation, or creation of 
wetlands and riparian areas. Fund assets will only be used 
for the purpose of contributing directly to tlie planning, 
acquisition, perpetual maintenance, enhancement, restoration. 
or creation of wetlands and riparian areas as described in G.S. 
143-214.8 through 143-214.13 in accordance with the 
Basinwide Restoration Plans developed for each river basin. 

(b) Payments into the Fund as determined in accordance 
with Rule .0402 of this Section shall be considered as 
compliance with the compensatory- mitigation requirements of 
certifications issued by the Department under 33 USC §1341: 
and permits or authorizations issued by the United States 
Army Corps of Engineers (Corps) under 33 USC §1344 if the 
contributions will meet the mitigation requirements of the 



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PROPOSED RULES 



Corps. 

(c) Donations or dedications of interest in real property 
may be accepted if consistent with the goals and objectives of 
the Basinwide Restoration Plan for the river basin as 
determined by the Secretary or the Secretary's designee. 

Authority G.S. 143-214.11; 143-214.12. 

.0402 SCHEDULE OF FEES 

(a) This schedule of fees is based on the cost of restoring 
or creating wetlands or surface waters capable of performing 
the same or similar functions as the wetlands or surface 
waters that have been impaired by permitted activities under 
33 use i)1341 and 33 USC §1344. The fees include directly 
related costs of restoration planning, land acquisition, long- 
term monitoring, maintenance and preservation of restored 
areas. 

(b) The amount of payment into the Fund necessary to 
achieve compliance with compensatory mitigation 
requirements as described in Rule ■0301(b) of this Subchapter 
shall be determined in accordance with Subparagraphs (b)(1) 
through (b)(3) of this Rule. The fee will be based on the 
acres and types of compensatory mitigation specified in the 
a pproved certifications issued by the Department under 33 
USC §1341: and permits or authorizations issued by the 
United States Army Corps of Engineers (Corps) under 33 
USC §1344. Payments shall be rounded up in increments of 
linear feet for streams and in 0.25 acre increments for 
wetlands, e.g. for streams. 520.3 linear feet of compensatory 
mitigation would be considered as 521 feet, and for wetlands. 
2.35 acres of required compensatory mitigation would be 
considered as 2^ acres for the purpose of calculating the 
amount of payment. 

(1) Classified surface waters other than wetlands as 
defined in I5A NCAC 2B .0202. The payment 
shall be one hundred twenty-five dollars ($125.00) 
per linear foot of stream. 

(2J Class WL wetlands as defined in 15A NCAC 2B 
.0101(c)(8). The payment shall be: 

(A) twelve thousand dollars ($12.000) per acre 
for non-riparian wetlands. 

(B) twenty-four thousand dollars ($24.000) per 
acre for riparian wetlands. 

£3J Class SWL wetlands as defined in 15 A NCAC 2B 
.0101(d)(4). The payment shall be one hundred 
twenty thousand dollars ($120.000) per acre. 

(c) The fees outlined in Subparagraphs (b)(1) through 
(b)(3) of this Rule shall be reviewed annually and adjusted 
based on Uie actual cost of restoration activities conducted by 
the Department, including planning, monitoring and 
maintenance costs. The recommended adjustment to this 
Schedule of Fees, if any, shall be included in the report 
presented to tlie Environmental Review Commission by 
November 1 of each year. Revisions to the Schedule of Fees 
shall be published in the first issue of each calendar year of 
the North Carolina Register. 



Authority G.S. 143-214.11; 143-214-12. 

.0403 DONATION OF PROPERTY 

(a) Donations or dedications of interest in real property 
may be accepted by the Secretary, or the Secretary's 
designee, provided that the property has been identified in the 
Basinwide Restoration Plan. The decision on whether to 
accept a donation of property shall include a determination by 
the Secretary, or the Secretary's designee, that restoration, 
enhancement or preservation of the property is consistent with 
the goals of an approved Basinwide Restoration Plan. The 
property is consistent with the Basinwide Restoration Plans if 
the property is identified as a priority site or qualifies as a 
priority site under the a pproved Basinwide Restoration Plan 
for the appropriate river basin. In addition, the Secretary or 
the Secretary's designee, shall consider the factors listed in 
Paragraphs (b) and Ic} of this Rule. 

(b) The factors that shall be considered by the Secretary. 
or the Secretary's designee, in determining whether to accept 
donations or dedications of interests in real property that 
require restoration or enhancement include the following: 

(1) the propeny is adjacent to or will become a part of 
a Department approved restoration project: or is 
adjacent to a sensitive natural resource, as 
identified in the Basinwide Restoration Plan: 

(2) the size of the property is at least five acres: 

(3) the likelihood that the site can be successfully 
restored or enhanced, based on hydrology, soils. 
and vegetation: 

(4) the extent of activities required to successfully 
restore or enhance the site. Sites requiring extreme 
measures for successful restoration, such as 
removal of structures, infrastructure, hazardous 
waste or solid waste will not be accepted: 

(5) presence of potentially si gnificant cultural or 
historic resources: 

(6) prior, current, and future land use of tlie donation 
of property and adjacent properties: 

(7) existence of federally-or state-listed sensitive, 
endangered, or threatened species, and/or their 
critical habitat: and 

(8) the potential for enhancement of natural resource 
values of public lands. 

(c) The factors that shall be considered by the Secretary, or 
the Secretary's designee, jn determining whether to accept 
donations of existing wetlands and riparian properties for 
preservation include the following: 

(1) the property has clearly identifiable unique wetland 
or riparian area fiinctions or values, such as 
federallv-or state-listed sensitive, endangered or 
threatened species, and/or their critical habitat, or 
unique natural heritage values: 

(2) the potential for enhancement of natural resource 
values of public lands: 

(3) the property is adjacent to. or will become a part of 
a Department approved restoration project: or is 
adjacent to a sensitive natural resource, as 



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PROPOSED RULES 



identified in the Basinuide Restoration Plan: 

(4) the size of the propen\- is at least fi\e acres: 

(5) the propert\' is under imminent threat of 
degradation: and 

(6) prior, current, and future land use of the donated 
propert\' and adjacent propenies. 

(d) At the expense of the applicant, the following 
information must be submitted with any proposal for 
donations or dedications of interest in real property: 

( 1 ) documentation that the propen\' meets the criteria 
outlined in Paragraphs (bi and (c) of this Rule: 

(2) US Geologic Sur\'ev 1:24.000 (7.5 minute) scale 
topographic map. count\' tax map. USDA Natural 
Resource Conser\ation Ser\ice Count\- Soil Sur\-ey 
Map, and count\' road map showing the location of 
the propenv to be donated along with information 
on existing site conditions, vegetation t\pes. 
presence of existing structures and easements: 

(3) a current property sur\e\' performed in accordance 
with the procedures of the Nonh Carolina 
Depanment of Administration. State Propen\ 
Office: 

(4) a current appraisal of the \'alue of the propen\- 
performed in accordance with the procedures of the 
Nonh Carolina Department of Administration. 
State Propert\ Office: 

(5) a title opinion performed in accordance with the 
procedures of the Nonh Carolina Depanment of 
Administration. State Propeny Office: 

(6) documentation of a completed Phase i 
En\ ironmental Assessment that indicates the 
propen\ is not affected by hazardous or solid waste 
disposal sites or air, water, or soil pollution: and 

(7) documentation that the propeny does not contain 
structures that present health or safet>' problems to 
the general public. If wells, septic or water or 
sewer connections exist. the\ shall he filled, 
remediated and or closed at owner's expense, and 
in accordance with state and local health and safetv 
regulations. 

(e) In addition to the factors outlined in Paragraphs (b) 
through (d) of tliis Rule, the Secretary, or the Secretary's 
designee, shall consider the following factors when e\'aluating 
a donation of propen\' to satisfy compensatory mitigation 
requirements: 

( 1 ) restoration of the propen\ will offset the ad\erse 
impacts of the permuted project: and 

(2) the ad\erse impacts of the permitted project are 
within the same subbasin as the propeny proposed 
for donation. 

if} For the purposes of satisf\ing compensator.' mitigation 

requirements through the donation of propen\' requiring 

restoration or enhancement, the following criteria shall apph': 

( 1 ) The size of propen\' to be donated must equal or 

exceed the acreage of wetland required to be 

mitigated under the appro\'ed permit and must be a 

minimum of t"i\e acres in size. 



(2) In addition to the donation of propeny. a 

restoration fee must be paid. The amount of 

payment into the Fund for restoration costs shall be 

determined in accordance with Pans (f)(2)(A) 

through (f)(2)(C) of this Rule. Restoration fees 

shall be rounded up in increments of linear feet for 

streams and in 0.25 acre increments for wetlands. 

e.g. for streams. 520.3 linear feet of compensatory 

mitigation would be considered as 521 feet . and for 

wetlands. 2.35 acres of required compensatory 

mitigation would be considered as 2^ acres for the 

purpose of calculating the amount of fees. 

(A) Classified surface waters other than wetlands 

as defined in i5A NCAC 2B .0202. The 

pa\ment for restoration shall be one hundred 

twenty-five dollars (S125.00) per linear foot 

of stream. 

(B.i Class WL wetlands as defined in 15A NCAC 

2B .0101(c)(8). 

iii six thousand dollars (S6.000) per acre 

for non-riparian: 
(ii) ten thousand dollars ($10.000) per 
acre for riparian. 
(C) Class SWL wetlands as defined in 15A 
NCAC 2B .0101(d)(4). The pa\ment for 
restoration shall be thin\' thousand dollars 
(530.000) per acre, 
(g) The Schedule of Restoration Fees outlined in 
Subparagraph (f)(2) of this Rule shall be reviewed armually 
and adjusted based on the actual cost of restoration activities 
conducted bv the Depanment. including monitoring and 
maintenance costs. The recommended adjustment to the 
Schedule of Restoration Fees, if any, shall be included in the 
repon presented to the Environmental Review Commission 
by November i of each \ear. Revisions to die Schedule of 
Restoration Fees shall be published in tlie first issue of each 
calendar \ear of the Nonh Carolina Register. 

(h) Donation of presen.ation propen\' to satisfy 
compensatory mitigation requirements will onh' be accepted 
if such propenv meets the requirements of 15A NCAC 2H 
.0500(h) and satisfies the compensatory mitigation 
requirements of the approved permit. 

(1 1 The donation of conservation easements to satisfy 
compensatory mitigation requirements will onh' be accepted 
if the conservation easement is granted in perpetuity and the 
encumbered propeny meets the requirements of Paragraphs 
(a) through (e) of tins Rule. In addition, the acreage of fee 
requirements of Paragraph (f) of this Rule shall apply. 

Aiithorm G.S. 143-214.11: 143-214-12. 

SECTION .0500 - \VETL.\N'DS RESTORATION 
FUSD 

.0501 PLUPOSE 

rai — Th e p u rp ose of the Wetlands Restoration Fund (Fund) 
IS to pr ovide a r e posito r y — fo r moneta r s - cont r ibutions o r 



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PROPOSED RULES 



payments and donations o r dedications of in t e r ests in r eal 

pro p e r ty. Fund assets will be used to promote the 

r e stora t ion, — enliancement, — preservation. — or — creation — of 
we t lands and r ipa r ian areas. — Fund assets will only be used 
for the pur p ose of contribu t ing di r ectly t o the acquisi t ion, 
pe rp etual maintenance, enhancement, res t o r ation, o r c r ea t ion 
o f we t lands and r iparian areas as described in G.S. 143-214.8 
th r ough — 143-214.13 — in — acco r dance — xvtth — the — w e tlands 
resto r ation plans d e velo p ed fo r each r ive r basin. 

(fe) — Payments in t o the Fund as determined in acco r dance 
with Rule .0502 of t his Sec t ion shall be conside r ed as 
compliance with the compensa t o r y mitigation requirements of 
cer t ifications issu e d by t he De p ar t m e n t unde r 33 U.S.C. § 
1341; aiid peimits o r autho r i z ations issu e d by t he United 
S t a t es Aimy Corps of Engin e e r s unde r 33 U.S.C. § 1344 if 
t h e contribu t ions will mee t t he mi t igation requi r ements of t he 
U. S. Army Cor p s of Enginee r s. 

tci — Donations o r dedications of in t e r es t in real property 
may be accep t ed if consis t en t with the goals and obj e ctives of 
the res t o r ation p lan for the r iv er basin as de t ermined by t he 
Sec r etary or Designee. 

Authority G.S. 143-214.11; 143-214.12. 

.0502 DEFINITIONS 

(tt) Com p ensat or y — mi t igation — means — the — r es t ora t ion. 

c r eation, enhancem e n t o r pr ese r va t ion of wetlands, r i p arian 
areas and classified su r face wa ter s tha t is requi r ed as a 
condi t ion of c e rtifica t ions issu e d by t he D ep artm e nt und er 33 
U.S.C. § 1341 and permi t s or au t ho r iza t ions issued by t he 
Uni t ed Sta t es Army Corps o f Enginee r s unde r 33 U.S.C. § 
«44t 

(tr) — Non- r i p arian wetlands means Class WL wetlands as 
defined in 15A NCAC 2D .0101(c)(0) whose majo r sou r ce of 
wat e r is pr eci p ita t ion. We t land t y p es gene r ally cons i de r ed t o 
be non-riparian include we t fla t s, p ocosins and ep h e m er al 
wetlands. 

(c) Ri p arian we t lands means Class WL w et lands as defined 
in 15A NCAC 2D .0101(c)(8) whos e major sourc e of wate r is 
g r ound wate r o r su r face wa t er. — Wetland types generally 
considered to be ri p arian include fr e shwa t e r marshes, swam p 
fo r ests, bottomland hardwood fo r es t s, headwate r forests, bog 
fores t s, moun t ain bogs and see p s. 

Authority G.S. 143-214.11; 143-214.12. 

.0503 SCHEDULE OF FEES 

(a) This schedule of fees is based on t he cost of res t o r ing 
o r creating we t lands o r surface waters ca p able of performing 
the same o r similar functions as the wetlands o r su r face 
wate r s that have been impai r ed by permitt e d develo p men t 
pr ojects. The fees include di r ec t ly r ela t ed costs of r es t oration 

planning, tend acquisi t ion, long-term monitoring, 

maintenance and p r eservation of resto r ed ar e as. 

*:^ — The amoun t of p ayment into the Fund in li e u of 
com pe nsato r y mi t igation requi re m e n t s as described in Rule 
.0501(b) of this Section shall be determined in acco r dance 



wi t h Sub p arag r a p hs (1) through (3) of this Parag r a p h. — The 
fee will be based on the ac r es and types of compcnsatoiy 
mi t iga t ion s p ecified in the approved U.S. Army Corps of 
Engineers permi t unde r 33 U.S.C. § 1344 o r the ce r tification 
issued — by — this — D e partment — unde r — 35 — U.S.C. — § — 1341. 
Paymen t s shall be calcula t ed in 0.25 acr e increments for 
wetlands and by the linear foot fo r s t reams. 

tH Classified su r face wa t e r s othe r t han we t lands as 

d e fined in 15 A NCAC 20 .0202. The paymen t 

shall be one hund r ed t wenty-five dollars ($125.00) 

pe r linear foo t of st r eam. 
(2) Class WL w e tlands as defined in 15A NCAC 2D 

.0101( c )(8). The payment shall b e : 

(A-) t welve t housand dollars ($12,000) pe r acre 

for non-riparian w et lands. 

(B) twen t y-fou r thousand dollars ($24,000) per 

ac re for r i p arian we t lands. 
0i Class SWL we t lands as defined in 15A NCAC 2D 

.0101(d)(4). — The p ayment shall be one hund re d 

twen t y thousand dollars ($120,000) p e r ac r e. 
(r) — Dona t ions o r dedications of interes t in r eal p ro p e rt y 
may — be — acc e p te d — in — hcu — of com p ensa t o r y — mitiga t ion 
r equi r emen t s as desc r ibed in Rul e .0501(b) of this Section 
pr ovid e d tha t the p rop e rty has been identified as an a p p r oved 
si t e in t he res t o r a t ion plan develo p ed fo r each r ive r basin. 
O t her p r o p e rt ies may be conside r ed by the Secre t ary o r his 
designee o n a casc-by-case basis. The decision on whether to 
acce pt o the r prop e rt i e s shall include a detLiiiiiiiatiuii that 
r es t o r a t ion or pr ese r va t ion of t he property is c o nsis t en t with 
the goals and objectives of the r esto r a t ion p lan f or the river 
basin. — The amount of c r edi t for donations of pr o p erty shall 
consid er — the — c o s t s — of — restoration — p lanning, — long-t e rm 
m o ni t o r ing, and main t enance of t he dona t ed pr o p erty. 

(d) This fee schedule will be subject to upda t e and r evision 
u p on de t ermination t ha t assessed fees va r y f r om the ac t ual 
cos t s of r es t o r ation activities desc r ibed in Rule .0501(a) of 
this Sec t ion. 

Authority G.S. 143-214.11; 143-214.12. 

.0504 PAYMENT 

ta) — Paymen t of fees shall be made by check or elect r onic 
fund tr ansfer to the North Carolina We t land R e storation 
Fund. 

i\r) — Donations or dedica t ions of inte r est in r eal prop ert y 
shall be d e ed e d t o the State of North Carolina o r to othe r 
public o r pr iva t e nonprofi t conse r va t i o n organizations as 
approved by the De p artment. 

Authority G.S. 143-214.11; 143-214.12. 

******************* 

Notice is hereby given in accordance with G.S. 150B-21.2 
that the Commission for Health Serxices intends to 
amend rules cited as 15A NCAC 19C .0801 - .0803; and 
adopt rules cited as 15A NCAC 19C .0804 - .0809. Notice of 



12:14 



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January 15, 1998 



1272 



PROPOSED RULES 



Rule-making Proceedings was published in the Register on 
November 14, 1997. 

Proposed Effective Date: M\ 1, 1998 

A Public Hearing will be conducted at 2:00 p.m. on 
February 2. 1998 at the Parker Lincoln Bldg.. Room 1B232, 
2728 Capital Blvd.. Raleigh. NC. 

Reason for Proposed Action: The ratified bill requires 
implementation of standards for the certification of 
individuals and firms conducting lead-based paint activities 
in child-occupied facilities or target housing and 
accreditation of training courses and training providers. The 
Department intends to submit an application to the US 
Environmental Protection Agency (EPA) to become an EPA 
authorized lead certification program. Tlie Department will 
accept written comment and comment at the public hearing 
on its intent to apply to become an EPA authorized state. 

Comment Procedures: All interested parties may submit 
written comments to the Division of Epidemiology, 
Occupational & Environmental Epidemiology Section. Health 
Hazards Control Branch. PO Box 29601, Raleigh, NC 
27626-0601. All comments should be submitted within 30 
days afler the publication of text. 

Fiscal Note: These Rules affect the expenditure or 
distribution of State finds subject to the Executive Budget 
Act, Article 1 of Chapter 143. These Rules do not affect local 
government funds and do not have a substantial economic 
impact of at least five million dollars ($5,000,000) in a 12- 
month period. 

CHAPTER 19 - HEALTH: EPIDEMIOLOGY 

SUBCHAPTER 19C - OCCUPATIONAL HEALTH 

SECTION .0800 LEAD-BASED PAINT 
HAZARD MANAGEMENT PROGRAM 

.0801 GENERAL 

(a) The following definitions shall apply throughout this 
Section: 

(1) Ce r tified P r oject Design er " m e ans an individual 
who is di r ectly r es p onsible fo r p lanning all phases 
of a l e ad abat e men t project f r om abatemen t site 
pr epa r ation t hrough final clearance. "Accredited 
training course" means a lead training course 
accredited by the Program pursuant to Rule .0805 
of this Section. 

(2) "C er tified Ins pe c t or" — means an individual who 
conduc t s ins p ections and sam p les fo r the pr esence 
and — Icrd — of — lead — in — paint; — dust; — and — soth 
"Accredited training provider" means a training 
provider who is accredited by the Program, 
pursuant to Rule .0806 of this Section, and who 



provides accredited training courses, pursuant to 
Rule .0805 of this Section. 

(3) "Ce rt ified Risk Assesso r " means an individual who 
inv e stigates and sam p les fo r the presence of lead in 
p aint, dust, and soil fo r the p ur p ose of dctcniiiuing 
the natu r e, s e ve r ity, and loca t ion of lead-bas e d 
p ain t haza r ds ; a ce r tified r isk assesso r also sam p les 
fo r the — p u rp ose of abat e ment clcai - ance testing. 
"Design" means a written or graphic plan prepared 
by a certified project designer specifying how an 
abatement project will be performed, and includes, 
but is not limited to. scope of work and technical 
specifications. The certified project designer's 
signature and certification number shall be on all 
such abatement designs. 

(4) "Ce rt ified Su p e r viso r " m e ans an individual who 

su p e r vises and conducts lead aba t ement. This 

pe r son may also develo p p lans and designs fo r 
abatemen t pr oj e c t s involving fewe r than 10 housing 
units. "Emergency Lead-Based Paint Abatement" 
means abatement conducted to remediate a lead- 
based paint hazard which has been determined by a 
certified risk assessor and the Program to be a 
significant lead-based paint hazard to building 
occupants. 

(5) "Ce rt ified Lead Wo r ke r " means an individual wh o 
performs l e ad aba t ement activities unde r the direc t 
supe r vision of a ce r tified su per viso r . "Immediate 
family" means an individual's family members 
limited to spouse, parents, siblings, grandparents, 
children, and grandchildren. 

(6) "In t e r im Ce r tifica t ion" — means the s t a t us of an 
individual — who — has — been — given — temporary 
ce r tifica t ion by th e P r og r am to ptiifoiiu specified 
aba t emen t activities. "Occupant Protection Plan" 
means a written plan which describes the measures 
and management procedures that will be taken 
during abatement to protect building occupants 
from exposure to lead-based paint hazards. The 
plan shall be unique to each residential dwelling or 
child-occupied facility. For projects fewer than 10 
units, the plan shall be prepared by a certified 
supervisor or project designer. . For projects with 
ten or more units, the plan shall be prepared by a 
certified project designer. The plan shall include 
the preparer's signature and certification number. 

(7) "Program" means the Lead-Based Paint Hazard 
Management Program within the NC Department 
of Health and Human Services^ 

(8) "Start date" means the date on which activities 
begin on a permitted lead abatement project 
requiring the use of certified individuals, including 
the abatement area isolation and preparation or any 
other activity which may disturb lead-based paint. 

(9) "Working day " means Monday through Friday. 
Holidays falling on any of these da\s are included 
in the definition. 



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PROPOSED RULES 



(b) Lead-Based Paint Activities. 40 CFR Part 745 Subpart 
Ll is hereby incorporated b^ reference, including any 
subsequent amendments and editions. This document is 
available for inspection at the Department of Health and 
Human Services. Health Hazards Control Branch. 2728 
Capital Blvd.. Raleigh. NC 27604. A copy of 40 CFR Part 
745 Subpart L may be obtained in writing from the US 
Government Bookstore. 999 Peachtree Street. Suite 120. 
Atlanta. GA. at a cost of thirty- eight dollars (S38.00). 

Authority G.S. 130A-453.01; 130A-453.il; 1 50B-21. 1(a)(3); 
EO 108, James B. Hunt, Jr., 1997. 

.0802 CERTinCATION OF INDIVTOUALS 

(a) No person shall perform lead-based paint activities 
until that person has been certified by the Program in the 
appropriate certification category, except as provided for in 
G.S. 130A-453. 0803(b). Certification for persons who were 
certified under the Interim Lead Abatement Certification 
Program and who were conducting specified lead-based paint 
activities, as defined in the Interim Lead Abatement 
Certification Program, prior to the effective date of these 
Rules, shall remain valid until the completion of the project 
be gun prior to the effective date of these Rules. Pe r s o ns wh o 
perform — specified — l e ad-based — pain t — ac t ivi t ies — funded by 
m on ies gran t ed f ro m the fede r al governmen t shall become 
c e r t ified by the P r og r am in one o r more of the foll o wing 
appropria t e ce rt ification ca t ego r ies : 

i^ Ce rt ified Lead Wo r ker; 

(2) — Ce rt ified Supei ' visor; 

(3) Cer t ifi e d Ins p ec t o r ; 

f4) C ert ifi e d P ro ject D e signe r : and 

(5) Ce r tified Risk Assesso r . 

(b) An applicant for certification shall have successfully 
completed complete applicable training courses accredited by 
an ot he r s t a t e t o pr ovide t r aining in the ca t egories list e d in 
Subparagraph (a)(l)-(5) of this Rule, unless t raining was 
t aken pr ior to June 1. 1 99 7. — In th e case of t r aining taken 
pr ior to June 1. 1 99 7, the a pp lican t shall have successfully 
com p le t ed an initial t raining course fo r t he s pe cific disci p lin e 
taugh t — on o r af t e r Oc t obe r — h — 1 99 0, — and — shaH — hare 
successfully com p l ete d an accredi t ed r ef r eshe r t r aining cou r s e 
f or t he s p ecific disci p line by t he date of a pp lica t ion, by the 
Program pursuant to Rule .0805 of this Section or accredited 
only by a state, tribe, or territory that has a written 
reciprocating agreement with the Program, and shall 
successfully complete the examination specified in Rule 
.0804. Successful completion includes attendance of at least 
95 percent of the course and passing the course exam and the 
hands-on skills assessment. An applicant for initial 
certification shall have successfully completed an accredited 
initial training course for a specific discipline within the \2 
months immediately preceding application. If initial training 
was completed more than VI months prior to application, the 
applicant shall have successfully completed an accredited 
refresher course for the specific discipline at least every 24 
months from the date of completion of initial training: and 



the applicant shall have successfully completed an accredited 
course for the specific discipline within 12 months prior to 
applying for certification. However, an applicant who 
completed training prior to the effective date of this Rule and 
applies for certification prior to December 31. 1998. shall 
meet the following requirements: 

£lj Training taken prior to July L. 1995. shall not be 

recognized for certification and the applicant shall 

complete an accredited initial training course: or 

(2) Applicants for certification who have successfully 

completed an initial training course for a specific 

discipline between July 1^ 1995. and July 1^. 1998. 

shall successfully complete an accredited refresher 

course for the specific discipline by December 31. 

1998. or by date of application whichever is first: 

and the applicant shall have successfully completed 

an accredited course for the specific discipline 

within 12 months prior to applying for 

certification. 

(c) In addition to the requirements in paragraph (b), an 

applicant, other than those for the certified worker category, 

shall meet the following: 

(1) a ce r tified ins p ect or shall have a high sch o ol 
di p l o ma o r equivalent: a risk assessor shall meet the 
training requirements for inspector and the 
examination requirements pursuant to Rule .0804 
of this Section for inspector and risk assessor, and 
shall have: 

(A) a Bachelor's degree and one year of 
experience in a related field: or 

(B) an Associate's degree and two years of 
experience in a related field: or 

(C) certification as an industrial hvgienist. 
professional engineer, registered architect: or 

(D) a high school diploma or equivalent and at 
least three years of experience in a related 
field. 

(2) a ce r tified nsk assess or shall have; 

(A) Bachelo r ' s deg r ee and one yea r o f ex p e r ience 

m — a — related — ftcW — (crg^ — \c?t&, — asbestos, 

envi ro nmental r emediati o n work; or 

c o nst r ucti o n), or an Ass o ciates deg r ee and 
tw o yea r s ex p enence in a r elated field (e.g. 
lead, asbestos, envi r onmental r emediation 
wo r k, o r const r uction); or 

(B^ Ce r tification — as — an — industnal — hygienist. 

pro fessi o nal enginee r , r egiste r ed a r chitect or 

ce r tification m a r elated 

engince r ing/health/envi r onmental field ( e.g. 
safety p r ofessional, envi ro nmental scientist); 
or 

(€) A high scho o l di p loma or equivalent and at 

least th r ee yea r s of ex p e r ience in a r elated 
fteH — (CTg^ — tead^ — asbestos. — envi r onmental 
r emediation wo r k, o r const r uction) o r in the 
building t r ades. 

a supervisor shall meet the examination 



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1274 



PROPOSED RULES 



requirements pursuant to Rule .0804 of this Section 
for supervisor and shall have: 

(A) one year of experience as a certified lead 
abatement worker: or. 

(B) at least two years of experience in a related 
field. 

(3) ce r tified su p e r ^ ' iso r shall have 

(t^t) A higli school di p loma o r equi\ ' alcnt: and one 

yea r ex p cncnce as a certified lead abatement 
^^ ' o r kc r : o r 

tB) At least luo > ' ea r s cx p cncnce in a r elated 

fieid — (t-g^ — lead: — asbestos. — cm ' i r onmental 
r emediation ^\o r k, or const r uction) o r in the 
building trades: 
a project designer shall meet the training 
requirements for supen.'isor and project designer 
and the examination requirements pursuant to Rule 
.0804 of this Section for supervisor and shall have: 

(A) a Bachelor's degree in engineering, 
architecture, or related profession, and one 
\ear of experience in building construction 
and design: or 

(B) a high school diploma or equivalent, and 
four years of experience in building 
construction and design or a related field. 

(4) a ce r tified pr oject designe r shall ha\ ' c: 

^ A — bachelo r 's — deg r ee — m — cngineenng. 

a r chitectu r e, o r r elated pr ofession, and one 
yea r of cx p encnce m building const r uction 
and design o r a r elated field: o r 

(©1 A high school di p loma o r equn'alcnt. and 

fou r — y e a r s e.x p enence m building 

const r uction and design o r a r elated field. 

an inspector shall meet the examination 

requirements pursuant to Rule .0804 of this Section 

for inspector. 
(d) To obtain cenification. the applicant shall submit to the 
Program: 

(1) a completed application on a form provided by the 
P r og r am : Program with the following information: 
(A) full name and social security number of 

applicant: 

address, including city, state, zip code, and 

telephone number: 

date of birth, sex, height, and weight: 

discipline applied for: 

name, address, and telephone number of 

employer: 

(F) training agencv attended: 

(G) name of training course completed: and 
(H) dates of course attended: 

(2) confi r mation of com p letion of an acc r edited initial 
OT — r ef r eshe r t r aining cou r se f r om the t r aining 
agency, the confi r mation shall be in the fo r m of an 
o r iginal — certificate — of com p letion — beanng — the 
training agency's ofiicial seal, o r an onginal lette r 
from the t r aining agency confirming successful 



mi 



com p letion — of the — cou r se — on — training — agency 
lette r head: two current, identical, i 1/4 inch x 1 
1/4 inch color photographs of the applicant: 

(3) when education is a r equi r ement, a cop> ' of tlie 
di p loma — or — t r anscn p t: — and confirmation of 
completion of accredited initial and refresher 
training courses, as applicable, from the training 
agency: the confirmation shall be in the form of an 
original cenificaie of completion of the accredited 
training course bearing the training agency's 
official seal, or an original letter from the training 
agency, on training agency letterhead, confirming 
completion of the course: however, if an applicant 
is cenified in a state, tribe, or territory' that has a 
reciprocating agreement with the Program, the 
applicant shall submit a copy of the state issued 
certification and meet the requirements of 
Paragraphs (b). (d)(l ) and (2) of this Rule: 

(4) when wo r k ex p e r ience is a requirement. — wo r k 
histo r y — documenting — lead — or — othe r — r elated 
ex p erienc e , when education is a requirement, a 
copy of the diploma or other written 
documentation: and documentation: and 

(5) when work experience is a requirement, work 
history documenting lead or other related 
experience including employer name, address, and 
telephone number: positions held and a description 
of work duties performed: and dates when the 
positions were held. 

(e) All Int er im certifications shall expire at the end of the 
Inte r im — head — Abatem e n t — C er tification — P r og r am, twelfth 
month after the certification is issued. 

(f) All certified p e r sons shall be assigned a ce r tification 
numbe r by the Prog r am. An applicant for renewal of 
certification shall successfullv complete the required 
accredited refresher training course within twelve (12) months 
prior to applying for certification renewal . and shall meet the 
requirements of Paragraphs (d)( 1). (2). and (3) of this Rule. 
If a person fails to obtain the required training within twenty- 
four (24) calendar months of the date of fast training, that 
person may be certified only by meeting the requirements of 
Paragraphs (b). (c). and tdi of the Rule. 

(g) In acco r dance \vith GS. 1jOA - 23. the P r og r am may 
r evoke certification fo r any violation of G S IjOA. Article 
19. o r the r ules of this Section, o r u p on finding that its 
issuance ^^ ' as based u p on inco rr ect o r inadequate info r mation 
that matenally affected the decision to issue certification. — A 
p e r son whose certification is r c^'okcd because of f r audulent 
mis r e pr esentations o r because of violations of Sub p a r ag r a p h 
(c)(j) of this Rule of the Section shall not r ea pp ly fo r 
certification befo r e six months afte r the rc^ ■ ocatlon and shall 
re p eat the initial training cou r se and othe r r equi r ements set 
out in Pa r ag r a p hs (b). (c). and (d) of this Rule. All certified 
persons shall be assigned a unique certification number by the 
Program. 

(h) In accordance with G.S. 130A-23. the Program ma>' 
suspend or revoke certification for any violation of G.S. 



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12:14 



PROPOSED RULES 



130A. Article 19A or these Rules, or upon finding that its 
issuance was based upon incoirect or inadequate information 
that materially affected the decision to issue certification. 
The Program may also suspend or revoke certification upon 
finding that the certified person has violated any requirement 
referenced in Rule .0808th) of this Section. A person whose 
certification is revoked shall repeat the initial training course 
and meet the requirements set out in Paragraphs (b). (c). and 
(d) of this Rule. A person whose cenification is revoked 
because of fraudulent misrepresentations or because of 
violations that create a significant public health hazard shall 
not reapply for certification before twelve (12) months after 
the revocation, and shall repeat the initial training course and 
meet the requirements set om in Paragraphs (b). (c). and (d) 
of this Rule. 



(d) In accordance with G.S. 130A-23. the Program may 
suspend or revoke certification for any violation of G.S. 
130A. Article 19A or the rules of this Section, or upon 
finding that its issuance was based upon incorrect or 
inadequate information that materially affected the decision to 
issue certification or recertification. The Program may 
revoke certification upon a finding that a certified firm has 
violated any requirement referenced in Rule .0808(h) of this 
Section. Certification shall be revoked upon revocation of 
certification by EPA or an EPA authorized program. A firm 
whose certification has been revoked because of fraudulent 
misrepresentations or because of violations that create a 
significant public health hazard shall not be eligible for 
certification for a period of twelve (12) months from the date 
of revocation. 



Authority G.S. 130A-453.03; 130A-453.il: 150B-21. 1(a)(3); 
EO 108. James B. Hunt, Jr., 1997. 



Authority G.S. 1 30A-453-04; 130A-453.il; 150B-21. 1(a)(3); 
EO 108, James B. Hunt, Jr., 1997. 



.0803 CERTIFICATION OF FIRMS 

ttd — All specified lead-based p aint ac t ivities fiinded by 
m o nies — g r an t ed — from — the — federal — gove r nment — shaH — be 
c o nduc t ed in accordance wi t h 40 CFR Part 745 Sub p ar t L 
Subsec t ion .227. which, is h ere by in c orpora t ed by refe r ence, 
including any subsequent amendmen t s and editions. — These 
documents are available for ins p ec t i o n at t he D ep ar t men t of 
Environmen t . Heal t h, and Na t ural Resou r ces. Occu p a t i o nal 
and — Envi r onmen t al — Epidemiology — S e c t i o n. — ?728 — Ca p i t al 
B o ulevard. Raleigh. NC 27604. Copies may be obtained f r ee 
of charge by wri t ing t h e Occu p a t ional and Environmen t al 
E p idemi o logy Sec t ion, PO B o x 2 9 601. Ral e igh. NC 27626- 
0601. All firms who conduct lead-based paint activities shall 
become certified by the Program. The Program shall issue a 
certificate of approval to firms meeting the requirements in 
Paragraphs (b) and (c} of Hiis Rule. 

(b) To become certified the firm shall submit a completed 
application to the Program on a form provided by the 
Program. The form shall include: 

(1) the name, address and telephone number of the 
firm: 

(2) a statement that attests that all individuals to be 
used by the firm to perform lead-based paint 
activities are certified by the Program: 

(3) a statement that attests that the firm will perform 
lead-based paint activities in accordance with these 
Rules and all applicable local. State, and Federal 
requirements, including all applicable record 
keeping requirements: 

(4) a disclosure of any action by EPA or an EPA 
authorized program involving violations, 
suspensions, revocations, or modifications of a 
firm's activities: and 

(5) the original signature, title, and printed name of an 
official of the firm. 

(c) All certifications shall expire at tlie end of tjie twelfth 
month after the certification is issued and can be renewed by 
submitting a completed application provided by the Program. 



.0804 PROGRAM ADMINISTERED EXAMS 

(a) The Program shall offer examinations for each 
individual certification category except worker. Individuals 
pass the exam by achieving a score of at least seventy (70) 
percent. Individuals seeking certification shall pass the 
appropriate exam. The examination shall be administered by 
the Program or by a state, tribe, or territory that has a written 
reciprocating agreement with the Program. If an individual 
does not successfully complete the examination after two 
attempts, the individual shall retake the initial course from an 
accredited training program before reapplying for 
certification. 

(b) Applicants seeking North Carolina certification who 
wish to take the Program administered examination shall first 
complete all other requirements for certification: the applicant 
will be notified of the exact time and location of the 
examination. The applicant shall present photo identification 
for verification of identity at the time of the examination. 

(c) Applicants seeking North Carolina certification who 
have been certified by a state, tribe, or territory that has a 
written reciprocating agreement with the Program shall meet 
the requirements of Rule .0802 Paragraphs (b). (d)(1) and (2) 
of this Section. A copy of that state's, tribe's, or territory's 
issued certification shall be verification that the applicant has 
met all other requirements for certification. 

Authority G.S. 130A-453-05; 130A-453-11; 150B-21. 1(a)(3). 

.0805 ACCREDITATION OF TRAINING 
COURSES 

(a) Training courses taught in North Carolina for lead 
certification shall be accredited by tlie Program, and shall be 
offered by an accredited training provider, pursuant to Rule 
.0806 of tins Section. If the course is accredited by a state, 
tribe, or territory that has a written reciprocating agreement 
with the Program, the course shall meet the requirements of 
Paragraphs (b). (c). (e). (h>. and tii of tliis Rule and Rule 
.0806 of this Section to become accredited by the Program. 



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1276 



PROPOSED RULES 



(b) A training provider may apply for initial and refresher 
training course accreditation for any of the following 
disciplines: inspector, risk assessor. super\'isor. project 
designer, and worker. A training provider applying for 
accreditation shall submit a completed training course 
application to the Program for review and approval, pursuant 
to Paragraph (e) of this Rule. Once a training course is 
accredited, any changes [n curriculum, hands-on exercises, 
principal instructor, or quality control plan from the original 
course accreditation application shall be approved by the 
Program prior to implementation. 

(c) For all courses, the training provider shall administer a 
closed book examination. Initial courses, except the Project 
Designer Course shall also include a hands-on skills 
assessment. For successful completion of the course, the 
students shall attend at least ninety-Five percent of the course, 
pass the examination with a minimum score of 70 percent, 
and satisfactorily complete the required hands-on skills. The 
initial course examination shall consist of a minimum of 50 
multiple choice questions, and the refresher course 
examinations shall consist of a minimum of 25 multiple 
choice questions. 

(d) Training courses shall be evaluated for accreditation 
purposes by the Program for course administration, course 
length. curriculum. training methods. instructors' 
qualifications, instructors' teaching effectiveness, technical 
accuracy of written materials and instruction, examination, 
and training certificate. The evaluation shall be conducted 
using 40 CFR Part 745 Subpan L. 

(e) Training course providers shall submit the following 
for evaluation and accreditation by the Program: 

( 1 ) a completed application on a form provided by the 
Program, along with supporting documentation. 
The form and supporting documentation shall 
include the following: 

(A) name, address, and telephone number of the 
training provider, and name and signature of 
the contact person, training manager, and 
principal instructor: 

(B) course title, location and the language in 
which the course is to be taught: 

(C) course agenda: 

(D) a copy of all written instructional material 
used: 

(E> learning or performance objectives for each 
topic to be taught: 

(F) a cop\- or description of aU audio/visual 
materials used: 

(G) a detailed description of each hands-on 
training acti\'it\' and skills assessment, 
including criteria for student proficiency: 

(H) a description of instructional facilities and 

equipment: 
(I) a copy of a sample exam with correct 

answers marked: 
(J) a sample cenificate with the following 

information: 



(vu) 
Mill 



m 



list 



(21 A list of 



Ql 



(i) Name, address, and social security 

number of student: 
(ii) Training course title specifying initial 

or refresher: 
(iii) Inclusive dates of course and 

applicable examination: 
(iv) Statement that the student completed 
the course and passed the required 
examination and hands-on skills 
assessment: 
(v) Unique certificate number: 
(vi) Printed name and signature of the 
training course manager and printed 
name of the principal instructor: 
Name, address, and telephone number 
of the training provider: 
Training course location: 
For worker training courses taught in 
languages other than English, the 
certificate shall indicate the language 
of the course: and 

of accredited lead training courses 
currently being provided for certification, 
list of instructors who will teach in North 
Carolina and their qualifications in accordance with 
Paragraph (f) of this Rule. 

A copy of the course quality control plan that meets 

the requirements of 40 CFR 745 Subpart L 

Subsection .225(c)(9). 

(f} All instructors and training managers shall be approved 

by the Program. Any person seeking approval as a training 

manager or instructor for courses covered under these Rules 

and taught in North Carolina shall meet the following 

requirements: 

(1) Training managers and instructors shall meet the 
requirements of 40 CFR 745 Subpart L Subsection 
.225(c). except that guest instructors who teach 
work practice topics and hands-on training shall 
meet the training requirements for principal 
instructors: however, guest instructors whose 
course instruction is limited to conducting training 
for XRF instruments are not required to meet the 
requirements for principal instructors: 

(2) Principal instructors and guest instructors who 
teach work practice topics or hands-on training 
shall meet the training requirements for 
certification, pursuant to Rule .0802 of this 
Section, for the discipline in which instructor 
appro\'al is sought: and 

(3) All training providers shall submit, or cause to be 
submitted, to the Program a completed application 
on a form provided by the Program with the 
following information: 

(A) name, address, and telephone number of the 
applicant: 

(B) name, address, and telephone number of the 
training provider that is employing the 



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12:14 



PROPOSED RULES 



applicant: 

£Q when training course completion is a 
requirement, confirmation of completion of 
an accredited initial or refresher training 
course from the training agency, the 
confirmation shall be in the form of m 
original certificate of completion of the 
accredited training course or the following 
information: the course title, dates of 
instruction, names of instructors, name, 
address, and telephone number of the 
training provider: 

£D} when education is a requirement, a copy of 
the diploma or other written documentation: 
and 

(E) when work experience is a requirement, 
documentation of relevant work history, 
including employer name, address, and 
telephone number, positions held, dates 
when positions were held, and legible copies 
of any relevant licenses, registrations, or 
certifications, 
(g) An application for cours e accreditation shall be 
processed as follows: 

(1) The Program shall review the application and 
supporting documentation submitted pursuant to 
Paragraph ("e) of this Rule and advise the applicant 
of any deficiencies: if the deficiencies are not 
corrected within one year from the date of 
application, the application and any supporting 
documentation may be returned to the applicant and 
the applicant shall be required to submit a 
completed application pursuant to Paragraph (e) of 
this Rule: approval of submitted documentation 
does not constitute course accreditation: 

(2) If the submitted documentation meets all applicable 
requirements of this Rule, the Program shall notify 
the applicant of this and also advise the applicant 
that it may contact the Program to schedule an on; 
site audit: the on-site audit shall be of a class of at 
least two student attendees and tau ght in North 
Carolina: 

£3} If the Program determines, as a result of the on-site 
audit, that the training course meets all applicable 
requirements of this Rule, it shall issue course 
accreditation: if the course does not meet these 
requirements, the Program shall notify the 
applicant of the deficiencies and advise the 
applicant that ft may request one additional on-site 
audit, which shall be held no more than six months 
from the date of the first audit: 

(4} if the Program determines, as the result of the 
second audit, that the training course meets all 
applicable requirements of this Rule, it shall issue 
course accreditation: if the course does not meet all 
these requirements, the Program shall notify the 
applicant of the deficiencies, return all application 



materials, and advise the applicant that it may not 
reapply for course accreditation for the audited 
course for a period of six months from the date of 
the last aud it- 
ch) Training course providers shall perform the following in 
order to maintain accreditation of all initial and refresher 
courses: 

(1) Issue a certificate of training meeting the 
requirements of Part (e)(l)(J) of this Rule to any 
student who successfully completes the required 
training, passes the hands on skills assessment, and 
passes the applicable examination. 

(2) Submit to the Program written notice of intention 
to conduct a training course for North Carolina lead 
certification purposes if the course is to be taught in 
North Carolina. Notices for training courses, 
except lead worker, shall be postmarked or received 
ten working days before the training course begins. 
Notices for lead worker training courses shall be 
postmarked or received five working days before 
the training course begins. If the training course is 
canceled, the training course provider shall notify 
the Program at least one working day prior to the 
scheduled start date. Notification of intent to 
conduct a training course shall be made using a 
form provided by the Program and shall include the 
following: 

(A) Training provider name, address, telephone 
number and contact person: 

(B) Training course title: 

£Q Inclusive dates of course and applicable 
exam: 

(D) Start and completion times: 

(E) Location of the course facility and directions 
to the course facility if the sjte is not routine 
for the training provider: 

(F) Language in which the course is taught: 

(G) Principal instructor: and 

(H) Signature of the training manager. 

(3) Notify the Program, in writing, at least ten 
working days prior to the scheduled course start 
date, of any changes to course length, curriculum, 
training methods, training manual or materials, 
instructors, examination, training certificate, 
training course manager or contact person. 

{4} Submit to the Program information and 
documentation for any course approved under 
Paragraph (e) of this Rule if requested by the 
Program. 

(5) Ensure that all training managers and instructors 
are approved by the Program. 

(6) Ensure that all training courses covered under this 
Rule meet the requirements of 40 CFR Part 745 
Subpart L, Subsection 225(c). (d). and (e) and the 
following requirements: 

(A) The instructor must follow the curriculum 
that was approved by the Program or a state. 



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1278 



PROPOSED RULES 



m 

18} 



m 



tribe, or territory with whom the Program 
has a reciprocity agreement. The schedule 
may be adjusted, but all curriculum elements 
shall be covered. 

(B) All initial and refresher training courses shall 
have a maximum of forty (40) students; 

(C) A day of training shall include at least six 
and one-half hours of direct instruction, 
including classroom, hands-on training or 
field trips: 

(D) Work time and instruction time shall not 
exceed twelve (12) hours in a twenty-four 
(24) hour period: 

(E) A training course shall be completed within a 
two-week period: 

(F> A single instructor is allowed only for a 
worker course. Other initial disciplines shall 
have a minimum of two instructors: 
(G) Instructor ratio for hands-on training shall be 

no more than ten students per instructor: 
(H) All course materials shall be in the language 

in which the course is being taught: 
(I) Each training course shall be discipline 

specific: 
(J) Students shall be allowed to take an 
examination no more than twice for each 
course. After two failures, the student shall 
retake the full course before being allowed to 
retest: and 
(K) Training providers shall provide examination 
security to prevent student access to the 
examination materials before and after the 
exam. Training providers shall take 
measures to preclude cheating during the 
exam, such as providing space between 
students, prohibiting talking, and monitoring 
students throughout the exam. 
Verify, by photo identification, the identity of any 
student requesting training. 

For each course accredited by the Program, and 
taught in North Carolina, the training provider 
shall submit a completed renewal application on a 
form provided by the Program. Effective July 1^ 
1999. a renewal application shall be submitted prior 
to the next course offering and annually thereafter. 
If an annual training course renewal lapses, the 
provider shall submit a renewal application prior to 
offering the course again in North Carolina. 
Work practice and worker protection 
demonstrations and hands-on exercises, including, 
but not limited to respirator fit testing, presented in 
all training courses covered under this Rule shall be 
conducted in accordance with Rule .0807 of this 
Section and 29 CFR 1926.62. which is hereby 
incorporated by reference. including any 
subsequent amendments and editions. Copies may 
be obtained by writing the NC Depanment of 



Labor. Bureau of Education. Training and 

Technical A ssistance. 319 Chapanoke Road. Suite 

105. Raleigh. NC. 27603. at a cost of ten dollars 

and sixty cents ($10.60). 

(i) Training course providers shall permit Program 

representatives to attend, evaluate and monitor any training 

course, take the course examination and have access to 

records of training courses without charge or hindrance to the 

Program for the purpose of evaluating compliance with these 

Rules. The Program shall perform periodic and unannounced 

on-site audits of training courses. 

ijj In accordance with G.S. 130A-23. the Program may 
suspend or revoke accreditation for a training course for any 
violation of G.S. 130A. Article 19A or these Rules and shall 
revoke accreditation upon revocation of accreditation by the 
EPA or by an EPA authorized accreditation program. 

Authority G.S. 130A-453.07; 130A-453.il: 150B-21. 1(a)(3). 

.0806 ACCREDITATION OF TRAINING 
PROVIDERS 

(a) All training providers who offer lead training courses 
in North Carolina for individual certification shall be 
accredited by tlie Program before offering training courses. 

(b) To become accredited, the training provider shall: 

(1) employ a training manager who meets the 
requirements of 40 CFR 745 Subpart L Subsection 
.225(c): and 

(2) submit a completed application to the Program on a 
form provided by the Program. The form shall 
include: 

(A) the name, address and telephone number of 
the training provider: 

(B) a statement that all courses taught in North 
Carolina for certification will comply at all 
times with aH of the requirements of these 
Rules: 

(C) a statement that the training provider is 
responsible for maintaining the validity and 
integrity of the hands-on skills assessment to 
ensure that it accurately evaluates the 
trainees' performance of the work practices 
and procedures associated with the course 
topics: 

(D) a statement that the training provider is 
responsible for maintaining the validity and 
integrity of the course examination to ensure 
that it accurately evaluates the trainees' 
knowledge and retention of the course topics: 

(E) a completed application for training 
manager, pursuant to Rule .0805(f) of this 
Section with documentation for meeting the 
requirements of 40 CFR 745 Subpart L 
Subsection .225(c): and 

(F) the original signature, title, and printed name 
of an official of the training company. 

(c) In accordance with G.S. 130A-23. the Program may 



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12:14 



PROPOSED RULES 



suspend or revoke accreditation of a training course provider 
for any violation of G.S. 130A. Article 19A or these Rules, 
and shall revoke accreditation upon revocation of 
accreditation by EPA or by an EPA authorized state. The 
Program shall revoke training provider accreditation upon 
finding that the training provider has falsified training 
documents. When training provider accreditation is revoked 
for falsification of training documents, the trainin g course 
provider shall not be eligible for reaccreditation for a period 
of three years from the date of revocation. 

Authority G.S. 130A-453.07; 130A-453.il; 150B-21.1 (a)(3). 

.0807 STANDARDS FOR CO^fDUCTING 
LEAD-BASED PAINT ACTIVITIES 

(a) All lead-based paint activities and design activities shall 
be conducted in accordance with 40 CFR 745 Subpart L^ 
Subsection .227. 

(b) For each inspection, risk assessment, or lead hazard 
screen conducted, the certified inspector or risk assessor shall 
submit to the Program a legible copy of the summary of the 
activity on a form provided or approved by the Program. 
The form shall be submitted within 45 days of the activitv. 

Authority G.S. 130A-453.10; 130A-453.il; 150B-21.1(a)(3). 

.0808 LEAD-BASED PAINT ABATEMENT 
PERMITS 

(a) No person shall conduct abatement without an 
abatement permit issued by the Program, except as provided 
for in G.S. 130A-453. 09(c). All abatement activities shall be 
conducted by a certified firm. 

(b) All applications shall be made in writing on a form 
provided or approved by tlie Program. The application shall 
include at least all of the following applicable information: 

(1) name, address, contact name, and telephone 
number of the owner and operator of tlie target 
housing or child occupied facility: 

(2) name, certification number, address, contact name, 
and telephone number of the certified firm: 

(3) name, certification number, address, and telephone 
number of the inspector and risk assessor: 

(4) name, certification number, address, and telephone 
number of the project designer: 

(5) location and street address, including building 
number or name and floor or room number, city, 
county, and state, of the building where the 
abatement is taking place: 

(6) scheduled start and completion dates of lead-based 
paint abatement work including preparation work 
and cleanup: 

(7) work schedule, including days of the week and 
hours to be worked: 

(8) amount of material to be abated: 

(9) method(s) of abatement: 

(10) non-hazardous waste transporter, address, contact 
name, and telephone number: 



(15) 



(16) 

(17) 



(1 1) non-hazardous waste disposal site, address, contact 
name, and telephone number: 

(12) hazardous waste transporter, address, contact name, 
and telephone number: 

(13) hazardous waste disposal site, address, contact 
name, and telephone number: 

(14) for ordered abatements, the name, title, and 
authority of the State or local government 
representative who has ordered the abatement, the 
date that the order was issued, and the date the 
abatement was ordered to begin: 
for emergency abatements, a description of the 
nature of the emergency and an explanation of how 
failure to correct the situation would cause a lead- 
based paint hazard: 
contract price for the abatement: and 
the name of the representative of the certified firm, 
address, original signature, and date. 

Applications for lead abatement permits shall be 
postmarked or received by the Program at least ten working 
days prior to the scheduled abatement start date. For 
emergency lead abatement activities, the ten working days 
may be waived by the Program. Applications for emergency 
lead-based paint abatement activities shall be submitted along 
with a letter from the owner or the certified risk assessor 
explaining the nature of the emergency. 

(d) A pplication for revision to an issued lead abatement 
permit shall be made by the applicant in writing on a form 
provided or approved by the Program and shall be received 
by the Program in accordance with the following: 

(1) Revision to a start date for a project that will begin 
after the start date stated in the approved permit 
shall be received on or before the previously stated 
start date or previously revised start date: 

(2) Revision to a start date for a projec t that will begin 
before the start date stated in the approved permit 
or subsequent revisions shall be received at least ten 
working days before the new start date: 

(3) Revision to a completion date that will be extended 
beyond the completion date stated in the approved 
permit shall be received by the original completion 
date or previously revised completion date: 

(4) Revision to a completion date that will be earlier 
than the completion date stated in tlie approved 
permit or subsequent revision shall be received by 
the new completion date: and 

(5) Revision to permits other than start or completion 
dates shall be submitted to the Program prior to 
initiating the activity which the revision addresses. 

(e) The following shall be maintained on site during 
abatement activities and be immediately available for review 
by the Program: 

(1) a copy of the abatement permit issued by the 
Program and all revisions with the Program's 
confirmation of receipt: 

(2) photo identification cards issued by the Program for 
all personnel performing lead abatement activities: 



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1280 



PROPOSED RULES 



(3) the occupant protection plan: and 

(4) any applicable abatement design, risk assessment 
and inspection reports. 

(0 All permitted abatement activities shall be conducted in 
accordance with Rule .0807 of this Section. 

(g) A certified supervisor shall be on-site at all times when 
permitted abatement activities are being conducted. 

(h) In accordance with G.S. 13QA-23. the Program may 
suspend or revoke the permit for any violation of G.S. 130A. 
Article 19A or these Rules. The Program may also revoke 
the permit upon a finding that its issuance was based upon 
incorrect or inadequate information that materially affected 
the decision to issue the permit. Notwithstanding permit 
revocation for violation of the rules of this Section, a lead- 
based paint abatement permit shall also be subject to 
revocation if the abatement activities are in violation of the 
following provisions with regard to lead-based paint 
abatement, as determined by tlie agencies which administer 
these Rules: 

(1) Department of Labor Rules found at Chapter 7, 
Title 13 of the North Carolina Administrative 
Code: 

(2) Department of Transportation Rules found at Title 
19A, of the North Carolina Administrative Code: 

(3) Solid Waste Management Rules found at Chapter 
13, Title 15A of tjie North Carolina Administrative 
Code: and 

£4} NC Childhood Lead Poisoning Prevention Program 
requirements found at G.S. 13QA, Article 5^ Pan 
4. 

Authority G.S. 130A-453.09; 130A-453.il; 150B-21. 1(a)(3). 

.0809 FEES 

(a) The fees required by G.S. 130A-453.08 for individual 
and firm certification shall be submitted with a completed 
application for certification. The amount of ttie fee shall be 
one hundred fifty dollars (S150.00) for each category, except 
that the fee for worker shall be fifty dollars (S50.00). 

(b> The fee required by G.S. 130A-453.08 for examination 
shall be submitted with a completed application for 
certification. The amount of the fee shall be seventy-five 
dollars ($75.00). 

(c) Ihe fees required by G.S. 130A-453.08 for initial 
course accreditation and renewal course accreditation shall be 
submitted with a training course application. The amount of 
the fee shall be two thousand dollars (S2000.00) for each 
initial course accreditation if tlie course does not have prior 
approval by a state, tribe, or territory that has a reciprocating 
agreement with the Program: fifteen hundred dollars 
($1500.00) for each course accreditation if tlie course fs 
accredited by a state, territory, or tribe that has a 
reciprocating agreement with the Program: and seven hundred 
fifty dollars ($750.00) for each renewal course accreditation. 

(d) The fees required by G.S. 130A-453.08 for course 
provider accreditation shall be submitted with a completed 
application. The amount of the fee shall be one hundred fifty 



dollars ($150.00). 

(e) The fee required by G.S. 130A-453.09 for abatement 
permits shall be submitted with a completed permit 
application. The amount of tlie fee shall be two percent of 
the contract price, not to exceed five hundred dollars 
($500.00). 

(f) The fee for a replacement photo identification card shall 
be fifteen dollars ($15.00). 

(g) In the case of issuing a refund for permits, an 
administrative cost of two hundred dollars ($200.00) shall be 
retained by the Program. 

Authority G.S. 130A-453.08; 130A-453.il; 150B-21 .1 (a)(3). 

Notice is hereby given in accordance with G.S. 150B-21.2 
that the Department of Health & Human Services 
intends to amend rule cited as 15A NCAC 19G .0102. Notice 
of Rule-making Proceedings was published in the Register on 
July 15. 1997. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 3:00 p.m. on 
February 2, 1998 at the Parker Lincoln Bldg., Room 1B232, 
2728 Capital Blvd.. Raleigh. NC. 

Reason for Proposed Action: The 1997 General Assembly 
ratified House Bill 488 amending General Statute 130A-190. 
rabies vaccination tags to authorize an increase in the fee 
charged for rabies tags. The Secretary of the Department 
may increase the tag fee by an amount not to exceed five cents 
($0. 05) per tag above the actual cost of the tag. 

Comment Procedures: Comments, statements, and other 
information may be submitted in writing within 30 days after 
the publication date in the North Carolina Register. Copies 
of the proposed rule may be obtained by contacting the 
Occupational & Environmental Epidemiology Section at 
919/733-3410. Written comments may be submitted to Mr. 
William Pate, DOE, OEES, PO Box 29601. Raleigh, NC 
27626. 

Fiscal Note: This Rule affects the expenditures and revenues 
of state and local government finds. This Rule does not have 
a substantial economic impact of at least five million dollars 
($5,000,000) in a 12-month period. 

CHAPTER 19 - HEALTH: 
EPIDEMIOLOGY 

SUBCHAPTER 19G - VETERINARY 
PUBLIC HEALTH 

SECTION .0100 - VETERINARY 
PUBLIC HEALTH PROGRAM 



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PROPOSED RULES 



.0102 FEES FOR RABIES TAGS, LINKS, AND 
RIVETS 

The Division of Epidemiology shall charge a fee to be paid 
by veterinarians or local health departments for the provision 
of rabies tags, links, and rivets. This fee shall be determined 
on the basis of actual costr cost plus transportation, and an 
additional five cents ($0.05) ger tag to be used to fund rabies 
education and prevention programs. 

Authority G.S. 130A-190. 



TITLE 17 - DEPARTMENT OF REVENUE 

Notice is hereby given that the Department of Revenue 
intends to amend rule cited as 17 NCAC 3C .0008. 
G.S. ISOB'l (d)(4) exempts the Department of Revenue from 
Part 2 Article 2A of Chapter 150B with respect to the notice 
and hearing requirements. 

Proposed Effective Date: August 1, 1998 

Instructions on How to Demand a Public Hearing: The 

Department of Revenue is not subject to the notice and 
hearing requirements of the APA. Nevertheless, the 
Department publishes notice of proposed text in the Register 
and will hold a public hearing if there is sufficient interest in 
a public hearing. The Department does this because it 
believes that notice and hearing serve good public policy. A 
request for a public hearing must be in writing and be 
submitted to Mr. Sam McEwen, Personal Taxes Division, at 
P.O. Box 871, Raleigh, NC 27602, by January 30, 1998. 
Notice of any public hearing scheduled on this proposed rule 
change will be published in the Register. 

Reason for Proposed Action: Chapter 300 of the 1997 
Session Laws changed the law on extensions of income and 
gift tax. Payment is no longer required to get an extension 
although the failure to pay penalty applies to late payments. 
The rule is revised to reflect the statutory change. 

Comment Procedures: Written comments may be submitted 
to Mr. Sam McEwen at North Carolina Department of 
Revenue, Personal Taxes Division, P.O. Box 871, Raleigh, 
NC 27602. Comments received will be taken into 
consideration in adopting the permanent rule. If you have 
questions, you may call Mr. McEwen at 919-733-3565. 

Fiscal Note: This Rule does not affect the expenditures or 
revenues of state or local government funds. This Rule does 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 3 - INDIVIDUAL INCOME: 
INHERITANCE AND GIFT TAX DIVISION 



SUBCHAPTER 3C - GIFT TAX 

.0008 EXTENSIONS 

(a) If the Gift Tax Return, Form G-600, cannot be filed by 
the due date of April 15, a donor may apply for an automatic 
four-month six-month extension of time to file the return. To 
receive the extension, a donor must file Form D-410, 
Application for Automatic Extension of Time to File State 
Income or Gift Tax Return, and p ay the full amoun t of gi ft 
t ax he ex pe c t s t o owe by the original due date of the return. 
In lieu of filing Form D-410, an automatic f o u r - month six- 
month extension of time to file the gift tax return will be 
granted tf to a donor who files Federal Form 4868, 
Application for Automatic Extension of Time, with the 
Internal Revenue Service, p ro vided he submits Service and 
submits to the Department a copy of the completed Form 
4868 and full payment of the gift tax to the De p ai l mcnt of 
R e venu e by the original due date of the return. When filing a 
copy of the Form 4868 in lieu of Form D-410, a donor must 
clearly state that the form is for North Car o lina; Carolina, 
must mark through the federal amounts shown on the foim, 
form, and must enter the applicable amounts for North 
Car o lina: and p ay t he gif t t ax due. Carolina. 

(b) A 10 percent late payment penalty will apply on 
applies to the remaining balance due if the tax paid by the due 
date of the return is less than 90 percent of the total amount 
of tax due. If the 90 percent rule is met, any remaining 
balance due, including interest, must be paid with the gift tax 
return before the expiration of the extension period to avoid 
the late payment penalty. If the application for extension is 
determined to be invalid, both the late filing and the late 
payment penalties will apply. An application for extension is 
considered invalid if the amount entered on the extension 
form as the tax expected to be due is not properly estimated. 
In determining whether the amount reflected as tax due on the 
application is properly estimated, all facts and circumstances, 
including the amount of tax due in prior years, whether 
substantial underpayments have been made in other years, and 
whether a donor made a bona fide and reasonable attempt to 
locate, gather, and consult information, most — be are 
considered. 

fc) — A d o n or can apply f or an addi t ional ext e nsion beyond 
the aut o matic fou r -month ex te nsio n by filing Form D-410A, 
A pp lica t ion fo r Additional Ext e nsion of Tim e to File State 
Income Tax Re t urn, in duplicate. — In li e u of filing Foiin D- 
410A, an addi t i o nal ext e nsion of t ime will be granted if a 
dono r files Fed er al Form 2688 with the Inte r nal Revenue 
Se r vice and includes a co p y of the a pp roved Form 2688 with 
his North Carolina re t urn. 

W(c) Donors living outside the United States and Puerto 
Rico (including military persoimel) shall b e are granted an 
automatic extension of two months for filing a North Carolina 
gift tax return. 

fc>(d) A return may be filed at any time within the 
extension period but it must be filed before the end of the 
extension period to avoid the late filing penalty. 



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1282 



PROPOSED RULES 



Authonn- G.S. 105-197: 105-236; 105-262: 105-263. 



Aiuhorin- G.S. 105-41: 105-262. 



******************** 



******************** 



Notice is hereby given thai the Department of Revenue 
intends to repeal rule cited as 17 NCAC 4B .0615. G.S. 
150B-l(d)(4) exempts the Department of Revenue from Part 2 
Article 2A of Chapter 150B with respect to the notice and 
hearing requirements. 

Proposed Effective Date: August 1, 1998 

Instructions on How to Demand a Public Hearing: The 

Department of Revenue is not subject to the notice and 
hearing requirements of the APA. Nevertheless, the 
Department publishes notice of proposed text in the Register 
and will hold a public hearing if there is sufficient interest in 
a public hearing. Tiie Department does this because it 
believes that notice and hearing ser\e good public policy. A 
request for a public hearing must be in writing and be 
submitted to Mr. Jay Hare at Corporate, Excise, and 
Insurance Tax Division, at P.O. Box 871, Raleigh, NC 
27602, by January 30, 1998. Notice of any public hearing 
scheduled on this proposed rule change will be published in 
the Register. 



N; 



'otice IS hereby given that the Department of Revenue 
intends to amend rules cited as 17 NCAC 4D .0303, 
.0505, .0508. .0901. G.S. 150B- 1(d)(4) exempts the 
Department of Revenue from Part 2 Article 2A of Chapter 
150B with respect to the notice and hearing requirements. 

Proposed Effective Date: August 1, 1998 

Instructions on How to Demand a Public Hearing: The 

Department of Revenue is not subject to the notice and 
hearing requirements of the APA. Nevertheless, the 
Department publishes notice of proposed text in the Register 
and will hold a public hearing if there is sufficient interest in 
a public hearing. The Department does this because it 
believes that notice and hearing ser\e good public policy. A 
request for a public hearing must be in writing and be 
submitted to Ms. Brenda Coleman, Corporate, Excise, and 
Insurance Tax Division, at P.O. Box 871, Raleigh, NC 
27602, by January 30, 1998. Notice of any public hearing 
scheduled on this proposed nde change will be published in 
the Register. 



Reason for Proposed Action: The form referred to in the 
rule is not used. The rest of the nde repeats the statute and is 
unnecessary. 

Comment Procedures: Written comments may be submitted 
to Mr. Jay Hare at North Carolina Department of Revenue, 
Corporate, Excise, and Insurance Tax Division, P.O. Box 
871, Raleigh, NC 27602. Comments received will be taken 
into consideration in adopting the permanent nde. If you 
have questions, you may call Mr. Hare at 919-733-1352. 

Fiscal Note: This Rule does not affect the expenditures or 
revenues of state or local government funds. This Rule does 
not have a substantial economic impact of at least five million 
dollars ($5,000,000} in a 12-month period. 

CHAPTER 4 - LICENSE ANT) EXCISE 
TAX DIVISION 



Reason for Proposed Action: 

17 NCAC 4D .0303 - Chapter 13 of the 1996 Second Extra 

Session phases out the excise tax on soft drinks. Effective 

July 1 , 1998, the rate will be one-founh of the original rate. 

The proposed changes to this nde reflect this change in the 

rate. 

17 NCAC 4D .0505 - Chapter 18 of the 1996 Second Extra 

Session removed the requirement that a flavored milk drink be 

registered with the Depanment to be exempt from tax. The 

proposed changes reflect this change in the law. 

17 NCAC 4D .0508 - Chapter 18 of the 1996 Second Extra 

Session removed the requirement that a flavored milk drink be 

registered with the Depanment to be exempt from tax and 

exempted all milk drinks from the tax. Tfie proposed changes 

reflect these changes in the law. 

17 NCAC 4D .0901 - Chapter 13 of the 1996 Second Extra 

Session phases out the excise tax on soft drinks. The 

proposed changes in this rule reflect the change in the rate. 



SUBCHAPTER 4B - LICENSE TAXES 

SECTION .0600 - ATTORNEYS AT LAW 
AND OTHER PROFESSIONALS 

.0615 SUSPENSION OF PROFESSIONAL 
LICENSES 

Su p e r ior court judges have the au t ho r ity unde r Subsection 
(g> of G.S. 105-41 to sus p end the professional license of such 
p erson who fails t o p ay the ta.x unde r this Section. Foiin 
D-22 9 , DisbaiiiiLii t Petition, is used fo r this procedu r e. 



Comment Procedures: Written comments may be submitted 
to Ms. Brenda Coleman at Nonh Carolina Depanment of 
Revenue. Corporate, Excise, and Insurance Tax Division, 
P. O. Box 871, Raleigh, NC 27602. Comments received will 
be taken into consideration in adopting the pennaneni nde. 
If you have questions, you may call Ms. Coleman at 919-733- 
1352. 

Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars (55.000,000) in a 12-month period. 



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PROPOSED RULES 



SUBCHAPTER 4D - SOFT DRINK TAX 
SECTION .0300 - TAX RATES 

.0303 LIQUID BASE RATE ILLUSTRATED 

(a) Whenever a dry mixture is converted to a liquid base, 
the tax per ounce of dry mixture will be computed in direct 
ratio to the quantity of ready-to-use liquid base produced. 

Example: Cocoa powder; generally, one pound of 
cocoa powder is used in the manufacture of a gallon of 
chocolate syrup. The tax on a gallon of syrup being 
erne d o llar ($1.00), twentv-five cents ($0.25). and 
since 16 ounces of powder are required to produce one 
gallon of syrup, the tax levied in this instance would 
be at the rate of six and o ne-fou rt h cen t s (6 $C ) 
$0.01563 per ounce of the dry mixture. 

(b) Concentrate mixtures which are used commercially for 
compounding soft drink liquid base products are subject to 
tax in proportion to the concentrates. 

Example: Concentrate X is a quadruple strength 
syrup. This concentrate represents four gallons of 
ready-to-use syrup. In such instance, the tax rate on 
such concentrate would be four dollars ($4.00) times 
the current per gallon rate of single strength syrup and 
would have to be tax paid accordingly by the 
distributor, wholesaler or retailer. 

(c) Premixed flavored milk shake drink mixes or premixed 
flavored imitation milk shake drink mixes which are not in 
ready-to-use size containers, and which milk shake drink 
mixes are for the purpose of further dispensing before being 
ready for consumption, are subject to tax based upon the 
amount of base product used in the manufacture of same. 
The fact that such products may be further chilled or partially 
frozen before being dispensed would not affect this liability. 

Approximately 10 percent of the premixed flavored milk 
shake drink mixes represents the amount of base product used 
in the manufacture of such premixed milk shake drink mix. 
Thus, a soft drink tax of t en cen t s ($.10) 10 percent of the 
applicable per-gallon liquid base products rate will cover the 
excise tax due on the soft drink products used in the 
manufacture of one gallon of premixed flavored milk shake 
drink mix. On a five gallon con t aine r of premixed flav or ed 
milk shake drink mix, a sof t drink tax of fifty cents ($0.50) 
would be a pp licable. A dealer is permitted to use this basis 
for payment of the tax on these premixed flavored milk shake 
drink mixes. 

(d) Premixed carbonated drinks, which are not in ready-to- 
use size containers, and which drinks are for the purpose of 
further dispensing before being ready for consumption, are 
not considered bottled soft drinks under the Soft Drink Tax 
Article. Instead, the tax on same shall be determined on the 
basis of the amount of liquid base product used in the 
manufacture of such premixed carbonated drinks. Proper tax 
shall be applicable to each such container based on the 
amount of liquid base product used in producing such drink. 

Using a five to one ratio, a liquid base product tax of 
seventeen cents ($0.17) four and one-fourth cents ($0.0425) 



will cover the amount of liquid base in one gallon of 
premixed carbonated drink. A dealer is permitted to use this 
basis for payment of the tax on these premixed carbonated 
drinks. Thus, on a five-gallon container of premixed drink, 
same would require a liquid base tax of eigh t y-five cents 
f$eT«5^ twenty -one cents ($0.21). 

Example: A 600-ounce container of premixed 

carbonated drink using this same five to one ratio, 

would represent approximately 100 ounces of syrup. 

On this basis, a tax of twenty cents ($.20) would be 

applicable to each container of premixed carbonated 

drink. 

(e) A chart providing the tax calculated for a representative 

listing of product sizes is available from the Secretary by 

requesting Form B-B-62. Soft Drink Excise Tax Calculation 

Chart. 

Authority G.S. 105-113.45; 105-262. 

SECTION .0500 - EXEMPTIONS FROM 
SOFT DRINK EXCISE TAX CONDITIONAL 

.0505 APPLICATION FOR EXEMPTION 
REQUIRED 

(a) Registration of all natural juice and all b ott l e d milk 
d r inks, excep t a na t ural liquid milk d r ink pr oduc e d by a 
farmer or a dai r y, drinks is required under G.S. 105-113.47. 
Any bottled soft natural juice drink (juice o r milk) for which 
exemption is claimed shall be registered with the Secretary on 
Form B-B-8, Application for Registration of Product for 
Exemption from Bottled (Closed Container) Soft Drink 
Excise Tax. Any concentrated fruit or vegetable juice for 
which exemption is claimed shall be registered with the 
Secretary on Form B-B-50, Application for Registration of 
Concentrated Frozen or Unfrozen Fruit or Vegetable Juice for 
Exemption from the Soft Drink Excise Tax. 

(b) Three copies of the label which will be affixed to the 
product or sample of the physical package showing weight 
and content and supporting the claim for exemption must 
accompany each application. 

(c) All bottled soft drinks and base products for which 
exemption has not been provided under the Soft Drink Tax 
Act are subject to tax both conmiercially and domestically. 

Authority G.S. 105-113.47; 105-262. 

.0508 NATURAL PRODUCTS EXEMPTION 
DETERMINED 

(a) Fai ' mers and dai r ies a r e no t r equi r ed t o r egister natural 
liquid milk. — Howeve r , a milk d r ink is subj e ct to th e tax 
unless exempted unde r G.S. 105-1 13.47. 

fb) Except for added vitamins, minerals, sugar, or 
ingredients extracted from an item and later returned to the 
item during the manufacturing process, the addition of any 
other ingredients (such as salt, coloring, artificial flavoring, 
preservative, or carbonation) to a bottled, concentrated or 
reconstituted juice makes the product a taxable item. 



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1284 



PROPOSED RULES 



Authority G.S. 105-113.46: 105-113.47: 105-262. 

SECTION .0900 - MONTHLY REPORT, 
INVOICE AND BOND REQUIREMENTS 

.0901 REPORT BY DISTRIBUTOR OR 
WHOLESALER 

(a) Distributors and wholesalers, liable for the tax under 
G.S. 105-1 13.51, must file monthly reports on Form B-B-60 
(Monthly Soft Drink Excise Tax Report of Distributor or 
Wholesale Dealer) with the Secretary, showing transactions 
for the preceding month. This monthly report is required 
whether or not any tax is shown to be due. The sec r etary 
Secretary will provide monthly report forms which must be 
filled out in detail, and any remittance due must accompany 
these repons. 

(b) Distributors and wholesalers, liable for the tax under 
G.S. 105-113.51, and who file timely reports are subject to 
the tax at the reduced rate of seventy-two cents (50.72) per 
gross, instead of one dollar and forty-four cents (51.44) per 
gross, on the first 15,000 gross of bottled soft drinks sold at 
wholesale from October 1 to September 30 of each year. 
This equates to a reduced rate of one-half cent C/i) pe r bottled 
sof t d r ink of the fuU ger bottle rate on the first 2,160,000 
bottled soft drinks sold annually. 

(c) Distributors and wholesalers who purchase non-tax- 
paid bottled soft drinks using a soft drink certificate of 
liability as provided for under G.S. 105-1 13.51(b) are not 
entitled to the reduced rate on any drinks purchased under a 
certificate and are subject to the tax at the full per bottle rate 
of o ne cent (50.01) p e r bottle o r on e dollar and forty-four 
cents (51.44) p e r g r oss on all such bottled soft drinks sold in 
North Carolina. 

(d) A wholesale sale is a sale made by a distributor or 
wholesaler for resale and does not include a sale to the user or 
ultimate consumer. 

(e) No discount is allowed on wholesale sales of bottled 
soft drinks drink tax paid at the reduced r ate of one-half cen t 
C/j) p e r bot t le, rate. 

tjQ A chart providing the tax calculated for a representative 
listing of product sizes is available from the Secretary by 
requesting Form B-B-62, Soft Drink Excise Tax Calculation 
Chart. 

Authority G.S. 105-113.51: 105-113.52: 105-262. 



3{i::^^^^:l;:4c:Ji::4' 



Notice is hereby given in accordance with G.S. 150B-21 .2 
that the Department of Revenue intends to amend rule 
cited as 17 NCAC 5C .0102. G.S. 150B-1 (d)(4) exempts the 
Department of Revenue from Part 2 Article 2A of Chapter 
150B with respect to the notice and hearing requirements. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 10:(K> a.m. on 



Tuesday, February 17. 1998 in Room 135 at the Department 
of Revenue, 501 N. Wilmington Street, Raleigh, NC 27604. 

Reason for Proposed Action: The nde does not reflect the 
Department 's case-by-case analysis for determining whether a 
person is doing business in this State nor some of the factors 
that may be important in making this determination. The rule 
also implies that the presence of any one of the factors is 
conclusive as to whether a person is doing business, which is 
not correct for all the factors. Although the list of factors is 
clearly not inclusive and the Department can use factors not 
enumerated in the list, the Department believes that taxpayers 
would benefit from knowing what factors are important to the 
Department. The Department therefore proposes to amend 
the rule as indicated. 

Comment Procedures: Written comments may be submitted 
to Mr. Jack Harper at North Carolina Department of 
Revenue, Corporate, Excise, and Insurance Tax Division, 
P.O. Box 871. Raleigh, NC 27602. Comments received will 
be taken into consideration in adopting the permanent rule. 
If you have questions, you may call Mr. Harper at 919-733- 
8484. 

Fiscal Note: This Rule does not affect the expenditures or 
revenues of state or local government funds. This Rule does 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 5 - CORPORATE INCOME 
AND FRANCHISE TAX DIVISION 

SUBCHAPTER 5C - CORPORATE INCOME 
TAX 

SECTION .0100 - CORPORATIONS 

SUBJECT TO THE TAX: TAX RATE 

AND ALLOCATION 

.0102 DETERMINATION OF DOING 
BUSEVESS 

(a) General. — For income tax purposes, the term "doing 
business" means the operation of any business enterprise or 
activity in North Carolina for economic gain, including, but 
not limited to, the following: gain. Whether or not a 
taxpayer is doing business in North Carolina depends on the 
facts of each case. Factors the Department considers in 
making this determination include the following: 

( 1 ) the maintenance of Maintaining an office or other 
place of business in North Carolina; Carolina. 

(2) the maintenance in No r th Ca r olina of Maintaining 
an inventory in North Carolina of merchandise or 
material for sale, dist r ibution distribution, or 
manufacture, regardless of whether kept on the 
premises of the taxpayer or in a public or rented 
warehous e : warehouse or other place. 

(3) the selling Selling or distributing of merchandise to 



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PROPOSED RULES 



(B) 

(C) 

computer 
processes, 
intangible | 

Conducting an 



Carolina is used as 
the location of the 

that results in the 



customers in North Carolina directly from a 
company-owned or operated vehicle when title to 
the merchandise is transferred from the seller or 
distributor to the customer at the time of the sale or 
distribution; distribution. 

(4) the rendering Rendering of a service to clients or 
customers in North Carolina by agents or 
employees of a foreign corp or ation ; corporation. 

(5) the owning. Owning, renting, or operating of 
business or income-producing property in North 
Carolina including, bu t n ot limited to , Carolina, 
including any of the following: 
(A) Real t y ; Real property; 

Tangible personal property; 

rademarks, tradenames, franchise rights, 

programs, copyrights, patented 
licenses. licenses, and other 

personal property. 

(6) Conducting an activity that results in the 
ori gination or acquisition of a loan secured by real 
property located in North Carolina or for which 
real property in North 
collateral, regardless of 
borrower. 

(7) Conducting an activity 
acquisition or control of tan gible or intangible 
personal property that produces income derived 
from North Carolina, such as receivables from 
credit card transactions for which the payor is 
located in North Carolina and secured or unsecured 
loans for which the payor is located in North 
Carolina. 

(b) Limitation. - The factors in Subparagraph (a)(6) and 
(a)(7) of this Rule do not include the acquisition or control of 
any of the following: 

(1) An obligation of the State of North Carolina or a 
unit of local government of North Carolina. 

(2) A debt instrument acquired for the purpose of 
investment from a person who is not a related party 
to the taxpayer, unless investing in intangible 
property is a principal business activity of the 
person acquiring the debt instrument. 

(3) A debt instrument whose acquisition is the result of 
participation in a securitization transaction. 

(c)fb> Partner. ;; Corporations who that are partners in a 
partnership or joint v e ntu r e venture, and corporations that are 
members of a limited liability company treated as a 
partnership for tax purposes, operating in North Carolina are 
considered to be "doing business". 

(d)fc) Motor Carrier. — "Doing business" by an interstate 
motor carrier is defined as the performance of any of the 
following business activities in North Carolina: 

(1) The main t enance o f Maintaining an office in the 
Stater State. 

(2) The o peration of Operating a terminal or ot he r 
another place of business in the S t ate; State. 

(3) Having an employee working out of the office or 



terminal of another c o m p any; company. 
(4) Dropping off or gathering up shipments in the 
State. 

Authority G.S. 105-130.4; 105-262. 

Notice is hereby given that the Department of Revenue 
intends to amend rules cited as 17 NCAC 5C .0703; 5E 
.0101 - .0103, .0105. G.S. 150B-l(d)(4) exempts the 
Department of Revenue from Part 2 Article 2A of Chapter 
150B with respect to the notice and hearing requirements. 

Proposed Effective Date: August 1, 1998 

Instructions on How to Demand a Public Hearing: The 

Department of Revenue is not subject to the notice and 
hearing requirements of the APA. Nevertheless, the 
Department publishes notice of proposed text in the Register 
and will hold a public hearing if there is sufficient interest in 
a public hearing. The Department does this because it 
believes that notice and hearing serve good public policy. A 
request for a public hearing must be in writing and be 
submitted to Mr. Jack Harper, Corporate, Excise, and 
Insurance Tax Division, at P.O. Box 871, Raleigh, NC 
27602, by January 30, 1998. Notice of any public hearing 
scheduled on this proposed rule change will be published in 
the Register. 

Reason for Proposed Action: 

17 NCAC 5C .0703 - The rule is revised in accordance with a 
hearing decision made by the Secretary and Technical Advice 
Memorandum CTAM 97-14, issued September 15, 1997. 
17 NCAC 5E .0101 - Transferred and Recodified from 11 
NCAC HE .0110 - Section 1 of Chapter 360 of the 1995 
Session Laws transferred from the Department of Insurance to 
the Department of Revenue the responsibility for collecting 
the insurance gross premiums tax and insurance regulatory 
surcharge, effective January 1, 1996. This rule has remained 
in effect in accordance with G.S. 150B-21.7 and is now being 
transferred to the appropriate place in the Code and revised 
to reflect the fact that the Department of Revenue rather than 
the Department of Insurance administers the tax. 
17 NCAC 5E .0102 - Transferred and Recodified from 11 
NCAC HE .0202 - Section 1 of Chapter 360 of the 1995 
Session Laws transferred from the Department of Insurance to 
the Department of Revenue the responsibility for collecting 
the insurance gross premiums tax and insurance regulatory 
surcharge, effective January 1, 1996. This rule has remained 
in effect in accordance with G.S. 150B-21.7 and is now being 
transferred to the appropriate place in the Code and revised 
to reflect statutory changes. 

17 NCAC 5E .0103 - Transferred and Recodified from 11 
NCAC HE .0203 - Section 1 of Chapter 360 of the 1995 
Session Laws transferred from the Department of Insurance to 
the Department of Revenue the responsibility for collecting 



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1286 



PROPOSED RULES 



the insurance gross premiums tax and insurance regulatory- 
surcharge , effective January 1. 1996. This rule has remained 
in effect in accordance with G.S. 150B-21.7 and is now being 
transferred to the appropriate place in the Code and revised 
to clarify the treatment of charges similar to finance charges. 
17 NCAC 5E .0105 - Transferred and Recodified from 11 
NCAC HE .0304 - Section 1 of Chapter 360 of the 1995 
Session Lmws transferred from the Department of Insurance to 
the Department of Revenue the responsibility for collecting 
the insurance gross premiums tax and insurance regulatory 
surcharge, effective January 1, 1996. This rule has remained 
in effect in accordance with G.S. 150B-21.7 and is now being 
transferred to the appropriate place in the Code with no 
changes except a technical change. 

Comment Procedures: Written comments may be submitted 
to Mr. Jack Harper at North Carolina Department of 
Revenue, Corporate, Excise, and Insurance Tax Division, 
P.O. Box 871, Raleigh, NC 27602. Comments received will 
be taken into consideration in adopting the permanent rule. 
If you have questions, you may call Mr. Harper at 919-733- 
8484. 

Fiscal Note: Tliese Rules do not affect the expenditures or 
revenues of state or local government funds. Tliese Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 5 - CORPORATE INCOME 
AND FRANCfflSE TAX DIVISION 



SUBCHAPTER 5C 



CORPORATE INCOME 
TAX 



(3) 



(4) 



(b) 



SECTION .0700 - BUSINESS AND 
NONBUSINESS INCOME 



constitute nonbusiness income p roviding, if both 
of the following apply: 

(a) sttch The property was subsequently utilized 
principally for the production of nonbusiness 
income for a period of at least three years 
prior to the dis p osition; and disposition: 
such The property was reflected as 
nonbusiness on the corporate income tax 
returns filed for those years. 
Interest income is business income if the intangible 
with respect to which the interest was received 
arises out of or was created by a business activity 
of the taxpayer and in those situations wher e when 
the purpose for acquiring the intangible is directly 
related to the business activity of the taxpayer. 
Dividend income is business income when dealing 
in securities is a principal business activity of the 
taxpayer. Other dividends arc can be either 
business or nonbusiness income. Dividends are 
business income if any of the following 
circumstances apply: 

(a) The dividend arises out of or is acquired in 
the regular course of tlie taxpayer's trade or 
business. 

The purpose of tfie taxpayer in acquiring or 
holding the stock that gives rise to the 
dividend is related to the taxpayer's trade or 
business. 

The dividend is paid by a unitary subsidiary 
of the taxpayer. 
Patent and copyright royalties are business income 
if the patent or copyright was created or used as an 
integral part of a principal business activity of the 
taxpayer. 



Authority- G.S. 105-130.4; 105-262. 



im 



ic] 



.0703 BUSIP^SS AND NONBUSINESS 
EVCOME 

The classification of income by the labels customarily given 
them, such as interest, rents, royalties, and capital gains, is of 
no aid in determining whether that income is business or 
nonbusiness income. The gain or loss recognized on the sale 
of property, for example, may be business income or 
nonbusiness income depending upon the relation to the 
taxpayer's trade or business: 

(1) Rental income from real or tangible personal 
property constitutes business income when the 
rental of sttch the property is a principal business 
activity of the taxpayer or the rental of the property 
is related to or incidental to the taxpayer's principal 
business acti\'ity. 

(2) A gain or loss from the sale, exchange exchange, or 
other disposition of real or personal property 
constitutes business income if the property while 
owned by the taxpayer was used to produce 
business income. However, the gain or loss will 



SUBCHAPTER 5E - INSURANCE PREMIUMS 
TAX AND REGULATOR SURCHARGE 

SECTION .0100 - GENERAL PROVISIONS 

.0101 REDUCED EVSTALLMENT PAYMENTS 

t^ The Secretary ma>' reduce the installment payment 
requirements for quarterly insurance gross p remium 
premiums ta.\ and q uar t e r ly additional g r oss pr emium tax, as 
r e p ort e d on forms desc r ibed unde r 11 NCAC 11 A. 0436 and 
11 NCAC 11 A. 0438, may be r educed by the Commissione r 
when regulatop>- surcharge if an insurer submits a written 
statement to the Department indicating that the insurer 
reasonably believes that the its total estimated payments made 
for the current year will exceed the anticipated tax liability 
for the year. 

tb) This written statement shatt must contain the basis for 
the insurer's belief that its installment payments should be 
reduced and shall add r ess state the factors supporting that 
belief. Th e stat e ment must include, bu t no t neccssarilv be 



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12:14 



PROPOSED RULES 



limited t o . fdLiors such as changes in premium t ax laws, the 
law and a reduction in the insurer's writings, and changes in 
the — insu r e r 's — marke t ing — thrmt; — sate — nrnn — dis t ribu t ion 
channels and underwri t ing, with a cor r esponding mone t ary 
impac t as detailed in the appro pr ia t e com p onen t s of t he 
insurer's business p lan, wntmps The statement must be 
submitted at least 45 days before the due date of an 
installment payment. An insurer that files a timely statement 
may reduce its next installment pa>ment in accordance with 
the statement unless the insurer recedes written notice from 
the Department that its request has been denied or adjusted. 

(c^ To — re ceive — conside r a t ion. — the — insur er 's — w r itten 

statement mus t be received by the De p artmen t a t leas t 45 days 
prio r to an installmti ' it filing da t e. 

(tt) — The Depai ' tmen t shall provide written no t ice to the 
insure r , no late r than 15 days prior to the installment filing 
dat e , o nly if the insurer's reques t for reduced installmen t 
payments is denied. 

Authority G.S. 105-228.5; 105-262. 

.0102 ADDITIONAL FIRE AND LIGHTNING 
TAXES 

AuIlIc 1 of Cha pt e r 1 18 of the General Statu t es of No rt h 
Carolina makes provision for the p ayment of a "fi r emen's 
Relief fund Tax" of one-half of one p e r cen t by insu r ance 
com p anies, co rp orations and associa t ions. 

The refe r ences t he r ein con t ained are inte rp reted to impose 
such tax on fi r e, lightning and automobile fi r e and ligh t ning 
p r emiums and mus t be p aid by any company w r iting such 
lines whe t her such com p anies are fir e o r casual t y com p anies. 
G S 105-228. 5(d) imposes two additional ta.xes on amounts 
collected on contracts of insurance applicable to fire and 
lightning co%erape The one imposed by subdnision (3) of 
that subsection applies to all contracts wntten for fire and 
lightning coyerage but does not apply to the fire and lightning 
portion of automobile or manne contracts. The one imposed 
bx subdivision (4} of that subsection a pplies only to contracts 
wntten for fire and lightning coyerage within a fire distnct 
but applies to the fire and lightning portion of automobile or 
manne contracts 

Authority G.S. 105-228.5; 105-262. 

.0103 PREMIUM FINANCE CHARGES 
AND OTHER CHARGES 

P r emium finance cha r ges ar e conside r ed t o be a p an of the 
pre mium charge for premium t ax p u rp os e s and are t o be 
included as p art of th e gross p remiums as defined in G.S. 
105-228. 5 . Gross premiums from business in this State 
include premium finance charges and installment payment 
charges or other charges recened as a result of the partial 
payment of premiums bj; a policyholder. These charges are 
therefore subject to ta.x. 

Authority G.S. 58-2-40; 105-228.5. 



.0105 GROUP PREMIUMS 

For purposes of gross pr emium premiums taxation, group 
premiums are to be allocated as follows: 

(1) For groups with less than 500 lives, the entire 
premium is allocated to the state in which the 
insured persons are principally located. 

(2) For groups of 500 or more lives. North Carolina is 
allocated the same percentage of the total premium 
as the number of lives in North Carolina bears to 
the total number of lives in the group. 

Authority G.S. 105-228.5; 105-262. 

Notice is hereby given that the Department of Revenue 
intends to amend rules cited as 17 NCAC 6B .0104, 
.0106 - .0107, .0112. .0117 - .0118, .3503, .3714, .3904; 
6C .0201, .0203; repeal 6B .0609, .3526 .3725. G.S. 150B- 
1(d)(4) exempts the Department of Revenue from Part 2 
Article 2A of Chapter 150B with respect to the notice and 
hearing requirements. 

Proposed Effective Date: August 1, 1998 

Instructions on How to Demand a Public Hearing: The 

Department of Revenue is not subject to the notice and 
hearing requirements of the APA. Nevertheless, the 
Department publishes notice of proposed text in the Register 
and will hold a public hearing if there is sufficient interest in 
a public hearing. The Department does this because it 
believes that notice and hearing serve good public policy. A 
request for a public hearing must be in writing and be 
submitted to Mr. Sam McEwen. Personal Taxes Division, at 
P.O. Box 871, Raleigh, NC 27602, by January 30. 1998. 
Notice of any public hearing scheduled on this proposed rule 
change will be published in the Register. 

Reason for Proposed Action: 

17 NCAC 68 .0104 - The rule is revised to delete an 

unnecessary requirement that a taxpayer state the name and 

address of the taxpayer's last employer and to make technical 

changes. 

17 NCAC 63 .0106 - The rule is revised to delete an 

unnecessary requirement that a taxpayer attach a complete 

federal return; only pages 1 and 2 are needed. 

17 NCAC 6B .0107 - Chapter 300 of the 1997 Session Laws 

changed the law on extensions of income tax. Payment is no 

longer required to get an extension although the failure to 

pay penalty applies to late payments. The rule is revised to 

reflect the statutory change. 

17 NCAC 68 .0112 - The rule is revised to delete an 

unnecessary requirement that a taxpayer attach a complete 

federal return; only pages 1 and 2 are needed. It is also 

revised to delete other unnecessary information. 

17 NCAC 68 .0117 - The rule is revised to delete an 

incorrect cap of $1,000 and to delete (e)(5) because effective 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1288 



PROPOSED RULES 



January 1. 1996. an adjusimem to federal taxable income is 

allowed \\iih respect to recovery amounts under the tax 

benefit ride. 

17 NCAC 6B .0118 - The nde is revised to reflect changes in 

the Department's procedures for participation in the 

Federal 'State Electronic Filing Program. 

17 NCAC 6B .0609 - The nde is obsolete because the tax 

credit was repealed in the 1996 2nd Extra Session of the 

General .Assembly. 

17 NCAC 6B .3503 - The rule is revised to delete an obsolete 

reference to the dividend tax credit, which was repealed in 

1996. 

17 NCAC 63 .3526 - The rule is obsolete because the tax 

credit was repealed in the 1996 2nd Extra Session of the 

General Assembly. 

17 NCAC 63 .3714 - Vie rule is revised to delete an obsolete 

reference to the dividend tax credit, which was repealed in 

1996. 

17 NCAC 68 .3725 - The rule is proposed to be repealed 

because it is unnecessary due to legislative changes that 

prohibit a deduction for costs of administration if those costs 

are also deducted on the decedent's federal fiduciary income 

tax return. 

17 NCAC 63 .3904 - The Rule is changed to delete an 

unnecessary requirement of attaching a complete federal 

return: pages 1 and 2 are sufficient. 

17 NCAC 6C .0201 & .0203 - Chapter 109 of the 1997 

Session Laws imposed a new requirement to withhold from 

payments to nonresidents in some circumstances. 'The 

proposed rule change incorporates a reference to a form to be 

used in administering the new withholding requirements. 

Comment Procedures: Written comments may be submitted 
to Mr. Sam McEwen at North Carolina Department of 
Revenue, Personal Taxes Division, P.O. Box 871, Raleigh, 
NC 27602. Comments received will be taken into 
consideration in adopting the permanent nde. If you have 
questions, you may call Mr. McEwen at 919-733-3565. 

Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds . These Rules do 
not have a substantial economic impact of at least five million 
dollars (55,000,000) in a 12-month period. 

CH.\PTER 6 - INDIVIDUAL INCOME 
TAX DIVISION 

SUBCRAPTER 6B - INDIMDUAL 
INCOME TAX 

SECTION .0100 - HLENG INDIVIDUAL 
ESCOME TAX RETUTLNS 

.0104 ITEMS REQUTRLNG SPECLAL 
ATTENTION 

(a) A taxpayer shaH must use the income tax form for the 
year in which his or her taxable vear begins. 



(b) The name and current address of the taxpayer shall 
must be plainly printed. The first name, middle initial initial. 
and last name shaH must be printed or typed. When a 
preaddressed form is used, any error in the name or address ^ 
shatt must be corrected. ^ 

(c) When filing an income tax return for an unmarried 
individual who died during the taxable year, write 
"Deceased" after the indi\idual's name on the return followed 
with the name and address of the executor or administrator. 
Example: John Doe (Deceased), Richard Doe, Executor: 100 
Oak Street, Anywhere, North Carolina, 27000. 

(d) The ta.\payer shatt must furnish his or her social 
security number and the name and social security number of 
his or her spouse and whether they are living together or 
apart, with the return. 

(e) The same filing status checked on the Federal income 
tax return shatt must be checked on the Nonh Carolina 
income tax return (Federal Form 1040EZ filers shatt must 
check single). However, if either the taxpayer or the 
taxpayer's spouse is a nonresident and had no North Carolina 
taxable income for the taxable year, the filing status 
MARRIED FILING SEPARATELY shaH must be checked. 

rti — The name and add r ess of the tax p ay er 's last employer 
shall always be entered. 

t^ if) Each applicable line of the tax return must be 
completed and the entering of words or phrases, such as 
"unconstitutional" or "object - self incrimination" does not 1 
meet the requirement of completing each applicable line on 
the return. t 

rtrt (£) The tax must be computed accura t ely. — anti I 
accurately and, in the case of a delinquent return, the penalty 
and mterest prescribed by statute siiaH must be added. 

trt lJU If an individual has moved into or out of North 
Carolina during the tax year or is a nonresident with income 
from sources within North Carolina, the section on Form D- 
400, Computation of North Carolina Taxable Income for 
Pan-Year Residents and Nonresidents Nonresidents, must be 
completed. Credit for tax paid to another state is not allowed 
to an individual moving into or out of this State unless he the 
individual has income derived from and taxed by another state 
or country while he is a resident of this State. 

tji ill If a tax credit is claimed, there must be attached to 
the return a true copy of the return filed with the other state 
or countr>' and a canceled check, receipt, or other proof of 
payment of tax to the other state or country. 

Ort ijj Even' return must be signed by the taxpayer or his 
or her authorized agent, and joint returns must be signed by 
both spouses. 

f+t iki Where tax has been withheld, the state copy of the 
Wage and Tax Statement must be attached to the return. 

tnr) £11 Any additional information that will assist in the 
processing and auditing of a return shaH must be indicated on 
the return or a worksheet or schedule attached to the return. 

(rrt (m) Anyone who is paid to prepare a return must sign 
the return in the space provided. The signature must be by 
hand. Stamps and labels are not acceptable. 



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12:14 



PROPOSED RULES 



Authority G.S. 2SA-15-S: 105-151. 105-152: 105-154: 105- 
155: 105-163. 5(e): 105-/63.7: 105-163.10: 105 251: 105- 
252: 105-262. 

.0106 FEDERAL FORMS 

A taxpayer whose lederal return retlects an address outside 
of North Carolina must inc l u de attach a copy ot pages 1 and 
2 of his com p le t e the federal return wi t h his to the taxpayer's 
North Carolina return. 

Authority G.S. 105-152: 105-155: 105-251: 105-252: 105- 
262. 

.0107 EXTENSIONS. 

(a) If an income tax return cannot be filed by the due date, 
an individual may apply for an automatic six-month extension 
of time to file the return. To receive the extension, an 
individual must file Form D-410, Application for Automatic 
Extension of Time to File State Income or Gift Tax Return, 
and p ay t he full amoun t o f t ax h e expec t s t o o we by the 
original due date of the return. In lieu of filing Form D-410, 
an automatic six-month extension of time to file a North 
Carolina income tax return will be granted tf to an individual 
who files Federal Form 4868, Application for Automatic 
Extension of Time, with the Internal Revenue S er vice, 
p r o vid e d he Service and submits to the Department a copy of 
the completed Form 4868 and f ull paymen t o f t he t ax by the 
original due date of the return. When filing a copy of the 
Form 4868 in lieu of Form D-410, an individual must clearly 
state that the form is for North Car o lina; Carolina, must mark 
through the federal amounts shown on the foi ii i, form, and 
must enter the applicable amounts for North Car o lina; and 
pay t he t ax due. Carolina. 

(b) A ten percent late payment penalty shall ap p ly on 
a pplies to the remaining balance due if the tax paid by the due 
date of the return is less than 90 percent of the total amount 
of tax due. If the 90 percent rule is met, any remaining 
balance due, including interest, must be paid with the income 
tax return before the expiration of the extension period to 
avoid the late payment penalty. If a taxpayer does not file the 
application for extension and p ay t h e full am o un t o f t ax 
e x p e cte d to be due by the original due date of the return, the 
taxpayer shall be is subject to both the five percent per month 
late filing penalty ($5 minimum; 25 percent maximum) and 
the ten percent late payment penalty ($5 minimum) on the 
remaining balance due. The penalties shaH also apply if the 
extension is determined to be invalid. An application for 
extension is invalid if the amount entered on the extension 
form as the tax expected to be due is not properly estimated. 
In determining whether the amount reflected as tax due on the 
application is properly estimated, all facts and circumstances, 
including the amount of tax due in prior years, whether 
substantial underpayments have been made in other years, and 
whether an individual made a bona fide and reasonable 
attempt to locate, gather, and consult information, mus t be 
are considered. 

(c) Individuals living outside the United States and Puerto 



Rico (including nuliiary personnel) s h all he are granted an 
automatic extension of two inonlhs lor liliiig a North Carolina 
income tax return if they attach a statement to the return 
showing that they were living outside the United States and 
Puerto Rico on the date the return was due. The time for 
payment of the tax shall al.w h e is also extended; however, 
interest is due on any unpaid tax from the original due date of 
the return until the tax is paid. If an individual is unable to 
file the return within the automatic two-month extension 
period, an additional four-month extension may be obtained 
by following the provisions in Paragraph (a) of this Rule; 
however. Form D-410 or Federal Form 4868 must be filed 
and t he t a x p a i d by the automatic two-month extended date of 
June 15. 

(d) A return may be filed at any time within the extension 
period but it must be filed before the end of the extension 
period to avoid the late filing penalty. 

Authority G.S. 105-155: 105-157: 105-160.6: 105-160.7: 
105-236(3): 105-236(4): 105-262: 105-263. 

.0112 JOINT RETURNS. 

(tt) — If an ind ividual and his s po use f i le a j o in t r e t u r n us i ng 
diffe r en t las t nam e s, th e y shall s ep a r a t e the n a m es w i th 
"and". F or exa mp le, "J o h n D ro wn and Mary Smi t h". 

ttr) — If an mdividual A spouse who files a joint federal 
return but files a separate North Carolina ret u r n, h e return 
must complete a separate federal return and attach it to hn the 
North Carolina tax return to show how his the spouse's 
federal taxable income would be determined on a separate 
federal return. In lieu of completing a separate federal return, 
an individual the spouse may submit a schedule showing the 
computation of the spouse's separate federal taxable in com e 
p r o vid e d a c o py o f th e j oint f e deral income t a x return is 
pro vid e d with t he No rt h Ca ro l in a re t u r n, income. A spouse 
who submits a schedule must attach a copy of pages 1 and 2 
of the spouse's joint federal return if the federal return 
reflects an address outside North Carolina. 

Authority G.S. W5-152(e): 105-262. 

.0117 TRANSITIONAL ADJUSTMENTS 

(a) The additions required by G.S. 105-134. 7(a)(1) include 
the increase in basis by the amount of federal gift tax paid on 
property received as a gift and any expenditures for interest 
and taxes capitalized for federal income tax purposes. 

(b) The deductions allowed by G.S. 105-134. 7(a)(2) 
include the increase in basis by the amount of State gift tax 
paid on property received as a gift and any business 
expenditures that an individual elected to expense under 
Section 179 of the Internal Revenue Code but which were 
required to be capitalized for State income tax purposes. 

(c) If, for a tax year beginning on or after January 1, 
1989, a taxpayer has both a net economic loss carried forward 
from a tax year beginning before January 1, 1989, and a 
federal net operating loss carried back from a future year, the 
net operating loss is considered a business-connected 



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January 15, 1998 



1290 



PROPOSED RULES 



deduction in determining the amount of net economic loss 
deducted in that year pursuant to G.S. 105-134. 7(a)(4). 

(d) The additions required by G.S. 105- 134.7(a)(6) 
include capital losses, charitable contributions, passive losses, 
and net operating losses incurred in taxable years beginning 
prior to January 1, 1989, and carried over for federal income 
tax purposes to taxable years beginning on or after January 1 , 
1989. 

In determining the amount of a capital loss to add back, 
shon-term capital losses from taxable years beginning prior to 
January 1. 1989, must be applied before applying short-term 
capital losses incurred in taxable years beginning on or after 
January 1, 1989, and before applying long-term capital losses 
from any year. Long-term capital losses from taxable years 
beginning prior to January 1, 1989, must be applied before 
applying long-term capital losses incurred in taxable years 
beginning on or after January 1, 1989. 

(e) Other adjustments required by G.S. 105-134. 7(b) 
include the difference in the amount of contributions to an 
annuity recovered, a child's unearned income reported by the 
child's parent, reforestation expenses, and a lump sum 
distribution received as a result of the class action in Simpson 
V. N.C. Local Government Employees' Retirement Sys t em, 
and in c e r t ain cases, income excluded from federal t axable 
income due t o t he tax benefit rule. System as follows: 

(1) If an An individual who recovered all or any 
portion of his the individual's contributions to an 
annuity for State income tax purposes for taxable 
years beginning prior to January 1, 1989, but sttdt 
am o un t was not r ecovered did not recover the 
amount for federal income tax pur p oses, — he 
purposes must include a ratable portion of the 
difference in the cost previously recovered for 
North Carolina purposes and the amount previously 
recovered for federal purposes on the North 
Carolina return for each year beginning on or after 
January 1 , 1989. The ratable portion to be added to 
federal taxable income is determined as follows: 



Amount recovered 
on State return - 



Amount recovered 

on Federal return = Addition to 
Taxable Income 



Remaining Years Life Expectancy 

If the cost recovered for federal income tax 
purposes for taxable years begiiming prior to 
January 1, 1989, is greater than the cost recovered (2) 

for State income tax purposes for years prior to 
1989, the ratable portion to be deducted from 
federal taxable income is determined as follows: 

Amount recovered Amount recovered 

on Federal return - on State return = Deduction to 

Taxable Income 

Remaining Years Life Expectancy 

The amount of difference in the numerator of the (3) 



fractions in this Subparagraph ^n^ must reflect the 
cost recovered during the taxpayer's period of 
residence in North Carolina and exclude any cost 
recovered during residence in another state. In the 
denominator, the remaining years life expectancy to 
be entered is the life expectancy determined for 
federal income tax purposes for the year the annuity 
started less the number of tax years the annuity was 
reportable for federal tax purposes prior to January 
I, 1989. The amount of the transitional adjustment 
computed for the tax year 1989 stetH must remain 
the same for each year of the individual's remaining 
life expectancy. 

This transitional adjustment shatt does not apply to 
retirement aimuities which that were exempt under 
prior State law, including retirement aimuities from 
the North Carolina Teachers' and State Employees' 
Retirement System and the North Carolina Local 
Governmental Employees' Retirement System. 
Also, this transitional adjustment shatt does not 
apply to retirement annuities that were received by 
former teachers and state employees of other states 
which and were fully exempt from North Carolina 
income tax prior to January 1, 1989, because the 
other state had no income tax law or practiced 
reciprocity with North Carolina with respect to 
taxing soch these benefits. 

This transitional adjustment shall a pp ly applies to 
retirement annuities that were received by former 
teachers and state employees of other states which 
and were not fully exempt because those states 
practiced no reciprocity or only partial reciprocity 
with North Carolina with respect to stich these 
benefits for taxable years begiiming prior to 
January 1, 1989. The amount of cost recovered on 
the North Carolina return prior to January 1, 1989, 
to be used in the formula for computing the 
addition to federal taxable income shali must be 
computed without considering any benefits which 
that were excluded as the result of partial 
reciprocity. 

(This adjustment applies to a retirement annuity 
from any federal retirement program. The 
adjustment is determined as of January 1, 1989, but 
shall a p ply applies only to tax years beginning on 
or after January 1, 1992.) 

A parent electing to report a child's unearned 
income for federal tax purposes must add back to 
hrs the parent's federal taxable income the amount 
of the child's unearned income in excess of five 
hundred dollars (S500.00) but no t exceeding one 
th o usand dollars (51,000). (S500.00). with the 
limitation that the amount added back is not to 
exceed the amount of the child's unearned income 
that is not taxed at the parent's marginal rate for 
federal tax purposes. 
fp-a A taxpayer elected who elects to claim 



1291 



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PROPOSED RULES 



reforestation expenses currently on hrs the 
taxpayer's North Carolina tax return for tax years 
beginning prior to January 1, 1989, he must add to 
federal taxable income the amount deducted as 
amortization expenses each year o n his federal 
inc o m e t ax re t urn, for federal tax purposes. A 
taxpayer who amortized stich these expenses on his 
the taxpayer's North Carolina return for tax years 
beginning prior to January 1, 1989, may continue 
to amortize by deducting the allowable amortization 
expenses each year on his the North Carolina 
return; however, federal taxable income must be 
increased by the amortization expenses claimed 
each year on his fed er al income t ax re t u r n, for 
federal tax purposes. 

(4) As a result of the class action in Simpson v. N.C. 
Local Government Employees' Retirement System, 
certain members of the retirement system received a 
lump sum distribution in 1991 representing 
disability compensation benefits which that should 
have been paid in prior years. The portion of the 
distribution that is attributable to tax years prior to 
1989 shall be deducted from federal taxable income 
on the 1991 return. The portion of the proceeds 
attributable to 1989 and 1990 is taxable in 1991 to 
the extent it exceeds the four thousand dollar 
(54,000) retirement exclusion provided under G.S. 
105-134. 6(b)(6)a . 

f5j Und er t h e " t ax benefi t r ule", recovei7 of an amoun t 

deduc t ed or c r edit e d in an e arlie r year is includ e d 
in f e d er al t axable in c ome in t he cur r en t ( r ecove r y) 
y e ar. — e xc ept — to — the — extent — the — earli er — year's 
deduction o r c r edi t did n ot r edu c e fede r al in co me 
t ax imposed in t ha t year. Income a tt ribu t able t o 
such re cove r y i t ems whi c h did no t pro vide a t ax 
ben e fi t for federal income t ax pu rpo s e s bu t did 
pro vide a tax ben e fi t fo r S t a t e p u rp oses f or t axable 
years beginning prior t o January 1, 1 9 8 9 , mus t b e 
added t o fede r al t axable income. 

Authority G.S. 105-134.7; 105-262; 105-264. 

.0118 ELECTRONIC nUNG OF INDIVmUAL 
INCOME TAX RETURNS 

(a) Panicipants in the Federal/State Electronic Filing 
Program are defined as follows: 

( 1 ) Electronic Return Originator (CRO) - a (ERO). - A 
firm, an organization, or an individual who deals 
directly with the taxpayer and taxpayer, who either 
prepares a tax return for the purpose of having an 
electronic return pr oduced, produced or collects a 
prepared tax return for the purpose of having an 
electronic return pr oduced; and produced, and who 
obtains the taxpayer's signature on Form NC 8453, 
Individual Income Tax Affirmation for Electronic 
Filing. 

(2) T r ansmit t er — = — a Transmitter. - A firm, an 



organization, or an individual who transmits 

electronic returns directly to the Internal Revenue 

Service (IRS). 

(3) Software Devel op e r — Developer. - A person who 

designs software for the purpose of formatting 

returns according to electronic return specifications 

of the Internal Revenue Service and the North 

Carolina Department of Revenue or transmits 

electronic returns directly to the IRS. 

A firm, or gani z a t i o n or an organization, or an individual 

may choose to perform one or all of the functions associated 

with electronic filing and be Electronic R et urn O r igina to rs 

(ERO), Transmi t ters, and Sof t ware Develope r s, or they may 

ch oo s e — to — ttsc — the — se r vices — o f an ot he r — qualified — firm, 

organiza t i o n or individual to pai l icipate in the Fede r al/S t a t e 

Elec tr onic Filing Prog r am , filing. 

(b) To participate in the Federal/State Electronic Filing 
Program applicants must complete Form NC 8633, 
Application to Panicipate in the Electronic Filing Program, 
and must be accepted into the Internal Revenue Service 
Federal Electronic Filing Program. Effective for tax year 
1994 applicants and prior participants must also pass a 
suitability check and receive a letter of acceptance for the 
current filing season as explained in Paragraph (c) of this 
Rule. 

(c) Suitability checks shall be are performed on all new 
applicants and all previous participants, on an annual basis, 
except for software developers. The following suitability 
checks may result in an applicant or previous participant 
being denied from acceptance into the program: 

(1) Conviction of a criminal offense under the revenue 
laws of the State of North Carolina, or of any 
offense involving dishones t y, dishonesty or breach 
of trust. 

(2) Failure to file timely and accurate tax returns, both 
personal and business. 

(3) Failure to pay personal or business tax liabilities. If 
failure to pay taxes is the determining factor in not 
being allowed to participate in the program, a 
conditional acceptanc e shall be is provided. The 
terms of the acceptance are as follows: 

(A) Applicant must pay all outstanding liabilities 
within six months of the date the application 
is received by the Department of Revenue or 
by the first day allowable for transmission of 
returns, whichever is earlier. 

fB) If t he a pp lica t i o n is r eceived afte r t h e firs t 

day — all o wable — for — tr ansmissi o n, — the — six 
mon t hs — begins — from — the — receipt of th e 
a pp lica t ion. — No — t ransmissions — shaH — be 
acce pt ed — tmtil — total — payment — has — been 
re c e iv e d. 

(B) (^Failure to fully pay the liabilities within 
six months shall re sul t results in exclusion 
from the electronic filing program. After the 
liability is paid, a new application must be 
submitted for reconsideration. 



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1292 



PROPOSED RULES 



(4) Misrepresentation on an application. 

(5) Suspension or rejection from the program in a prior 
year if corrective action is not taken and approved 
by the North Carolina Department of Revenue. 

(6) Other facts or conduct of a disreputable nature that 
would reflect adversely on the program. 

(7) Unethical practices in return preparation. 

(d) The Department shall send the applicant a letter of 
acceptance for participation in the Federal/Slate Electronic 
Filing Program for the current filing season after passing the 
suitability check. If the applicant does not pass the suitability 
check, a letter of rejection explaining the reason for rejection 
and the applicant's right of appeal shall be sent to the 
applicant. 

(e) The applicant agreement requires the firm, organizati o n 
o r individual and thei r participant and the participant's 
employees to comply with all of the provisions of Internal 
Revenue Service Publication 1345, Handbook for Electronic 
Filers of Individual Income Tax Returns, and of North 
Carolina Department of Revenue Handbook for Electronic 
Filers of Individual Income Tax Returns, and of related 
publications for the applicable years of participation. 

(f) Effective for tax year 1995, a new application. Form 
NC 8633, shall not be required each year. If an applicant is 
accepted into the Federal/State Electronic Filing Program for 
tax year 1994, an application is not required for subsequent 
tax years except for revisions and supplements including 
changes to the electronic filer's ownership structure, business 
name, contact representative's name or telephone number, 
functions performed, applicant or branch office(s) or drop-off 
collection point(s). 

(g) Completed applications must be received by the North 
Carolina Department of Revenue prior to transmitting returns 
on or before December 1 preceding the tax year for which the 
application is made. If r etu r ns are transmi tt ed bef o re an 
applica t ion is acc ep t e d, th e D ep ar t m e n t shall noti f y the 
tr ansmitt er in w r iting to submi t an application within 10 
days. If a r es p onse is no t r eceived wi t hin t his time p eriod, t he 
D ep a rt m e n t — shall — sus p end — the — p rocessing — of — rettrms 
el e ct r onically — filed — by — the — a pp lican t — and — advise — t hose 
tax p aye r s to file p a per re tu r ns. 

(h) After an electronic return has been prepared and before 
the return is transmitted electronically, the taxpayer (and 
spouse, if a joint return) must verify the information on the 
return and sign and date a completed Form NC 8453, 
Individual Income Tax Affirmation for Electronic Filing. The 
preparer/transmitter must provide the taxpayer with a paper 
copy of the return. 

(i) Form NC 8453 must be submitted to the Department 
with all required schedules, attachments, and information by 
the el e c tr onic filer, t r ansmi tt e r , o r e lectronic re t u r n o r iginato r 
FRO no later than the next working day after receiving the 
IRS acknowledgement of the federal return with a "NC" 
indicator. The "NC" indicator establishes that a North 
Carolina return was received by the IRS Memphis Service 
Center with a corresponding federal return. The state return 
will be electronically down-loaded to the Nonh Carolina 



Department of Revenue for processing. 

(j) A copy of Form NC 8453 and 8453. copies of the 
taxpayers' wage and tax statemen t s shall be r e t ained by the 
preparer/ t ransmitter — f or o ne — year. — Schedules statements, 
schedules explaining other modifications made on Form B= 
466 D-40Q. and other documents requiring signatures shatt 
ahn must be retained f or o ne year, by the ERO until the end 
of the year in which the return was filed. Substitute wage 
and tax statements and copies of wage and tax statements 
generated by a pr e p are r — or — t r ansmi t ter preparer's or 
transmitter's software are not acceptable. The employer 
issued employer-issued state copy of the wage and tax 
statement is the only acceptable wage and tax statement. 

(k) After the Electronic Retu r n O r iginat or ERO receives 
IRS acknowledgement with a "NC" indicator. Forms NC 
8453 shall be batched and mailed to the Department of 
Revenue in the same manner as the federal forms 8453s are 
furnished to the Internal Revenue Service. Forms not received 
by the Department in a timely manner will be requested in 
writing by the North Carolina Department of Revenue 
Electronic Filing Coordinator. Any request for missing 
Forms NC 8453s must be responded to in a timely manner. 
Failure to comply with the obligations of an Electronic Filer 
can cause the applicant's participation in the electronic filing 
program to be terminated. 

(1) The status levels of a participant in the electronic filing 
program are as follows: 

(1) Accepted in good standing - electronic filing 
participant (a firm, o r ganiza t ion o r individual) who 
has filed a North Carolina application for electronic 
filing and has met all the criteria for the electronic 
filing program and has not received a written 
warning from the Department. 
(1) Warning status - electronic filing participant who 
has been issued a letter of warning due to 
noncompliance with program requirements. 
(3) Probation - electronic filing participant who has 
failed t o comply with been issued a warning let t ers 
letter from the Depaitmen t or co n t rive t o commi t 
flagran t viola t ions in the program. Department . 
{4} Termination - electronic filing participant who has 
failed to comply with the terms of probation. 
probation or has committed flagrant violations of 
the program requirements , 
(m) Taxpayer returns transmitted by an applicant or former 
participant who has been rejected from the program shall not 
be processed by the Department. The taxpayers shall be 
notified to file paper returns. 

(n) Terminated participants may apply for reinstatement in 
the Federal/State Electronic Filing Program upon compliance 
with all r ules and r egula t i o ns requirements of the program. 

Authority G.S. 105-262; Rev. Proc. 93-8, Internal Revenue 
Bulletin 1993-2, January 11, 1993. 

SECTION .0600 - TAX CREDITS 



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PROPOSED RULES 



.0609 CREDIT FOR NORTH CAROLINA 
DIVIDENDS 

(a) Dividends from s t ock owned join t ly must be all o cated 
50 percent to each spouse. — Dividends f r om s t ock o wned by 
only one spouse must be allocated enti r ely t o t ha t s po use . 

(tr^ — Th e t ax credi t fo r dividends pr o vid e d in G.S. 105- 
151.1 9 — is n o t — allowed — f or dividends — r eceived — f ro m a 
co rp o r a t ion which elec t ed t o be t axed as an S cor p ora t ion 
under the — Internal — Revenue Code exce pt — fo r dividends 
at t ribu t able t o a taxable pe r i o d du r ing which the c o r p oration 
o p era t ed as a C corporation. 

Authority G.S. 105-151.19; 105-262. 

SECTION .3500 - PARTNERSIDPS 

.3503 PARTNERSfflP RETURNS. 

(a) A North Carolina pannership return (Form D-403), 
must be filed by every partnership doing business in North 
Carolina if a federal partnership return was required to be 
filed. The partnership return shall be filed on or before April 
15 if on a calendar year basis and on or before the 15th day of 
the fourth month following the end of the fiscal year if on a 
fiscal year basis. For individual income tax purposes, the 
term "business carried on in this State" means the operation 
of any activity within North Carolina regularly, continuously, 
and systematically for the purpose of income or profit. A 
sporadic activity, a hobby, or an amusement diversion does 
not come within the definition of a business carried on in this 
State. Income from an intangible source, including gain 
realized from the sale of intangible property, which is 
received in the course of a business carried on in this State so 
as to have a taxable situs here (including such income which 
is included in the distributive share of partnership income, 
whether distributed or not) is included in the numerator of the 
fraction used in determining the portion of federal taxable 
income that is taxable to North Carolina by a nonresident. 
The return must include the names and addresses of the 
individuals entitled to share in the net income of the 
partnership and must be signed by the managing partner and 
the individual preparing the return. 

(b) A partnership must provide a completed Schedule NC 
K-1, or similar schedule, to each person who was a partner in 
the partnership at any time during the year reflecting that 
partner's share of the partnership's income, adjustments, tax 
credits, dividend income, and tax paid by the manager of the 
partnership. The schedule must be provided to each partner 
on or before the day on which the partnership return is 
required to be filed. When r e p o r ting the dis t ributive share of 
dividend income, the p ar t ne r shi p must pr ovide each par t ner a 
list of t he amoun t and source of the dividends. When 
reporting the distributive share of tax credits, a list of the 
amount and type of tax credits must be provided each 
taxpayer. 

(c) A copy of the federal Partnership Income Tax Return, 
Form 1065, and all schedules, including each K-1 must be 
attached to the North Carolina partnership return. 



(d) In determining whether a partnership is carrying on a 
trade or business in North Carolina if its principal business 
activity is "investments," all facts and circumstances must be 
considered. Determining factors include the following: 

(1) the extent of business operations in this State, 
including maintaining an office, number of 
employees, property, bank transactions in this 
State, 

(2) the source of principal income (interest and 
dividends versus gain from the sale of securities), 

(3) the length of time securities are held (long-term 
holding of securities for capital appreciation versus 
short-term trading for profit), 

(4) volume of transactions and value of securities 
bought and sold. 

If a partnership's only activities within North Carolina are 
in the nature of an investment account in which the securities 
are held for capital appreciation and income, the receipt of 
dividends and interest and the occasional sales of stocks and 
bonds does not constitute carrying on a trade or business in 
this State. A nonresident partner shall not include his 
distributive share of the partnership's income in the 
numerator of the fraction in determining North Carolina 
taxable income. If the activities of the partnership are 
extensive, the partnership is deemed to be engaged in a trade 
or business and a nonresident partner must include his 
distributive share of the partnership's income in the 
numerator. 

Authority G.S. 105-152(a)(2); 105-1 54(c); 105-262. 

.3526 TAX CREDITS. 

Since — the — total — dividend — inc o me — h — allocated — to — the 
individual p artn er s, the p ar t ne r shi p shall f urnish each residen t 
par t ner a s c hedule o f his share o f t he divid e nds t o be used in 
determining any all o wable t ax c r edit t o be claimed on the 
partner's individual inc o me tax re tu r n . 

Authority G.S. 105-151.19; 105-262. 

SECTION .3700 - ESTATES AND 
TRUSTS 

.3714 TAX CREDITS 

(a) A fiduciary required to pay an income tax to North 
Carolina for on behalf of a trust or an estate f o r which he acts 
may claim a credit for tax imposed and paid to another state 
or country on income from sources within the other state or 
country under the provisions of G.S. 105-160. 4(a). 

(b) A resident beneficiary of an estate or trust, the 
fiduciary of which pays an income tax to another state or 
country on distributable income reportable to North Carolina 
which that is derived from sources in the other state or 
country may claim a credit against his the beneficiary's 
North Carolina tax for his the beneficiary's share of tax paid 
the other state or country under the provisions of G.S. 105- 
160.4(e) . 



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1294 



PROPOSED RULES 



return with his or her spouse but cannot qualify to file a joint 
North Carolina income tax return because his the spouse is a 
nonresident and had no North Carolina taxable income, h e 
income must calculate hrs the individual's federal taxable 
income on a federal income tax form as a married person 
filing a separate federal income tax return and attach it to hts 
the individual's North Carolina return to show how his the 
separate federal taxable income was determined. The 
individual filing the separate federal return shali must report 
only his the individual's income, exemptions, and deductions. 
In lieu of making the calculation on a federal form, an 
individual may submit a schedule showing the computation of 
his the individual's separate federal taxable income p rovided 

fr) 14tc — tax — credi t — for — No rt h — Carolina — dividends he submi t s a co p y of his f e de r al joint income r eturn wi t h his 

a pp o r tioned to t h e esta t e o r t r ust shall be en t e r ed on t he line No r th Carolina r etu r n, income. An individual who submits 

a schedule must attach a copy of pages 1 and 2 of the 
individual's joint federal return if the federal return reflects 
an address outside North Carolina. 

(c) If an An individual who has income from sources 
within another state or country while a resident of North 
Carolina and the othe r sta t e or count r y taxes the individual on 
such income, he is subject to tax on the income by the other 
state or country may be eligible to claim a tax credit under 
G.S. 105-151 . 

(d) A nonresident is not entitled to the tax credits for tax 
paid another state or country or for child and dependent care 
expenses. 



(c) A schedule is provided on the fiduciary return for use 
in computing the tax credit allowable to the estate or trust. 
Before this schedule may be completed, however, there must 
be an allocation between the estate or trust and its 
beneficiaries of the tax paid and the gross income on which 
such tax was paid to the other state or country. 

(d) The fiduciary's share and each beneficiary's share of 
the gross income on which tax has been paid to another state 
or country is determined by the governing instrument and 
should be entered in the appropriate schedule on the fiduciary 
return. The fiduciary's share of the total gross income to be 
used in the tax credit computation schedule is the total gross 
income from Federal Form 1041. 

^Fi« 

Ttcd- 

fo r " o th e r t ax c r edi t s". The credit appor t ionment is based on 
t h e dist r ibu t ions during the year as — they — re late to th e 



distnbu t abl e ne t income adjus t ed fo r Sta t e tax p u rp oses unless 
t he will o r tr us t inst r umen t c r eating the es t ate oi — trttst 
pr ovides fo r t h e dis tr ibu t ion of the dividends to c er tain 
beneficiaries. If such is t he cas e , the t ax c r edi t would b e 
available t o the beneficiary to which the dividends we r e 
dis tr ibuted. 

tf)£el If additional tax credits are claimed, a separate 
schedule shaH must be attached to the fiduciary return 
showing how the credits were determined and how they are 
allocated between the beneficiaries and the fiduciary. 



Authority G.S. 105-151: 105-160.3; 105-160.4; 105-262. 

.3725 ADMINISTRATION EXPENSES 

The fede r al t axabl e incom e of an es t ate is not adjus t ed fo r 



adminis t ration e. T 



ex p enses clamied on t he t e de r al tiduciary 
income t ax r e turn in calcula t ing the estate's S t a t e taxabl e 
income even though a deduc t ion may be claimed for such 
administ r ation ex p enses on the North Carolina inhe r itance t ax 
r e t u r n. — G.S. 105-134.7 pr ovides that t h e S e c r e t ary may by 
r ule r equi r e t r ansitional adjustmen t s tha t will assu re that th e 
chang e to fede r al taxabl e income as a star t ing p oin t in 
calculating S t a t e t axable income will no t r esult in a double 

allowance — of deductions. This — a pp li e s — to — the — double 

allowance of deductions fo r income tax p u rp oses atid does no t 
a pp ly to a deduction claimed fo r inhe r itance tax pur p oses 
which is allowed unde r a se p arate division of the Revenue 
Laws. 



Authority G.S. 105-134.5; 105-151; 105-262. 

SUBCHAPTER 6C - WITHHOLDING 

SECTION .0200 - REPORTING AND 
PAYING TAX WITHHELD 

.0201 NEW EMPLOYERS. 

North Carolina does not use a deposit system for income 
tax withheld. Each new employer who is required to withhold 
North Carolina income tax must complete and file with the 
Department an application for a withholding identification 
number. Form NC-1, AS/RPl. which can be obtained from 
any office of the Department. A withholding identification 
number will be assigned which shall be r eco r ded in a 
perman e n t p lac e and assigned. The number must be used on 
all reports and correspondence concerning withholding. 



Authority G.S. 105-160.2; 105-262. 



Authoritx G.S. 105-163.18; 105-262. 



SECTION .3900 - NONRESIDENTS 
AND PART- YEAR RESIDENTS 

.3904 TAXABLE INCOME OF NONRESIDENTS 
AND PART-YEAR RESIDENTS 

(a) Nonresidents and pan-year residents are required to 
prorate their federal taxable income to determine the portion 
that is subject to North Carolina tax. 

(b) a-an An individual who files a joint federal income tax 



.0203 ANNUAL REPORTS. 

(a) At the end of each calendar year employers are 
required to furnish wage and tax statements. Form NC-2, to 
em p loyees, employees and Form NC-1099PS to contractors 
from whom tax was withheld. Two copies must be furnished 
to the employee or contractor and one copy must be furnished 
to the Department. 

(b) Reports of payments of income, interest, rents, 
premiums, dividends, aimuities, remunerations, emoluments, 



1295 



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12:14 



PROPOSED RULES 



fees, gains, profits, taxable meal reimbursements, and other 
determinable annual or periodic gains during a calendar year 
must be made on Information at the Source Reports, Form 
NC-1099, if the payments have not otherwise been reported. 
Effective fo r p ayments made on or after January 1, 1 99 2. t he 
Form NC-1099 reports are not required to be filed unless if 
the payments have not been reported to the Internal Revenue 
Service under the provisions of Section 6041 of the C o de or 
Code, the payments have not otherwise been reported to the 
Dcpai l men t . Department, or no North Carolina income tax 
was withheld from the payments. Notwithstanding the above, 
any person required to file Form NC-1099NRS under the 
provisions of Rule 17 NCAC 6B. 3804(c) shatt must do so 
regardless of any requirement to report the sale to the Internal 
Revenue Service. 

Authority G.S. 105-154; 105-163.7; 105-163.18; 105-262. 

******************** 

Notice is hereby given that the Department of Revenue 
intends to amend rules cited as 17 NCAC 7B .0104, 
.0207, .0901, .1301, .1404. .1602. .1701 - .1702. .1801 - 
.1802. .2201. .2212. .3104, .3301 - .3302, .3901, .3910, 
.4301; repeal .1703, .3303 - .3306. G.S. 150B-l(d)(4) 
exempts the Department of Revenue from Part 2 Article 2A of 
Chapter 150B with respect to the notice arul hearing 
requirements. 

Proposed Effective Date: August 1, 1998 

Instructions on How to Demand a Public Hearing: The 

Department of Revenue is not subject to the notice and 
hearing requirements of the APA. Nevertheless, the 
Department publishes notice of proposed text in the Register 
and will hold a public hearing if there is sufficient interest in 
a public hearing. The Department does this because it 
believes that notice and hearing ser\'e good public policy. A 
request for a public hearing must be in writing and be 
submitted to Mr. Tim Holmes, Sales and Use Tax Division, at 
P.O. Box 871. Raleigh, NC 27602, by January 30, 1998. 
Notice of any public hearing scheduled on this proposed rule 
change will be published in the Register. 

Reason for Proposed Action: 

17 NCAC 73 .0104 - Chapter 77 of the 1997 Session Laws 
added a new annual use tax filing period for consumers who 
make mail order purchases. The act became effective May 
22, 1997, and applies to purchases made on or after January 
1. 1997. The act sets the due date of the individual income 
tax return as the due date of the annual consumer use tax 
return. Individual income tax returns are due April 15. The 
act supersedes the prior requirement of filing on a quarterly 
basis. In revie^ving the rule to make the changes needed as a 
result of the 1997 legislation, the Department determined that 
much of the rule repeats the statutes and that G.S. 105- 
164.17. referred to in the rule, was repealed in 1993. The 



proposed revision therefore deletes the parts that repeat the 

statute as well as the references to G.S. 105-164.17. 

17 NCAC 78 .0207 - This change accompanies the change to 

17 NCAC 7B .0104 and makes the reporting requirements of 

manufacturers the same as for other taxpayers. The current 

rule refers to monthly reports but reports are required from 

manufacturers on the same basis as other taxpayers. The 

change is therefore a clarifying change. 

17 NCAC 7B .0901 - Chapter 521 of the 1997 Session Laws 

added a new sales and use tax exemption for audiovisual 

masters, effective October 1, 1997. The proposed 

amendments to this rule reflect the new exemption. The 

amendments also make technical changes to the rule. 

17 NCAC 7B .1301 - This is a clarifying change. 

17 NCAC 7B .1404 - The proposed change updates the list of 

medical items that are subject to tax. 

17 NCAC 7B .1602 - Chapter 392 of the 1997 Session Laws 

enacted a new tax on dry cleaner solvents. The refunds in 

G.S. 105-164. 14 do not apply to this tax. This rule is 

amended to reflect this act. 

17 NCAC 7B .1701 - Chapter 475 of the 1997 Session Laws 

reduces the State sales tax on food to 2% effective July 1, 

1998. This rule does not reflect the current lower rate of 3% 

or the 2% July 1, 1998 rate. The rule can either be amended 

to add this specific reduction or be rewritten so that each rate 

of tax that differs from the general State 4% rate does not 

have to be listed. The proposed amendment takes the latter 

route and rewrites the rule so that a listing of rates other than 

the 4% rate is not needed. 

17 NCAC 7B .1702 - Chapter 392 of the 1997 Session Laws 

enacted a new tax on dry cleaner solvents. The refunds in 

G.S. 105-164.14 do not apply to this tax. This rule is 

amended to reflect this act. To avoid duplication, it refers to 

Rule 7B .1602, which is being amended at the same time. 

17 NCAC 78 .1703 - This rule is not needed when the 

proposed changes to 17 NCAC 7B .1701 become effective. 

The proposed changes to that rule are published in this 

Register. 

17 NCAC 78 .1801 - The statement in the rule that food is 

subject to State sales tax at the rate of four percent is 

incorrect. The rate was changed to three percent effective 

January 1, 1997, by Chapter 13 of the 1996 Second Extra 

Session and will drop to rwo percent effective July 1, 1998, as 

a result of Chapter 475 of the 1997 Session Laws. This rule 

is amended to reflect these acts. 

17 NCAC 78 .1802 - Chapter 392 of the 1997 Session Laws 

enacted a new tax on dry cleaner solvents. The refunds in 

G.S. 105-164.14 do not apply to this tax. This rule is 

amended to reflect this act. 

17 NCAC 78 .2201, & .2212 - Chapter 475 of the 1997 

Session Laws reduces the State sales tax on food to 2% 

effective July 1. 1998. This rule does not reflect the current 

lower rate of 3% or the 2% July 1, 1998 rate. The proposed 

amendment reflects this rate changes by rewriting the nde so 

that it no longer refers to a specific rate. 

17 NCAC 78 .3104 - The proposed change clarifies the scope 

of the rule. 



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1296 



PROPOSED RULES 



17NCAC 7B .3301 - The proposed change updates the list of 

items that are exempt from sales and use tax as orthopedic 

appliances. 

17NCAC 7B .3302 - The proposed change updates the list of 

items that are exempt from, sales and use tax as therapeutic. 

prosthetic or artificial devices sold on prescription. 

17 NCAC 7B .3303, .3304, .3305, .3306 - This proposed 

change accompanies the proposed changes to 17 NCAC 78 

.3301. Tlie substance of this rule is incorporated in the 

proposed revisions to 78 .3301. If those changes are 

adopted, this rule is no longer needed. 

17 NCAC 7B .3901, .3910 - Chapter 397 of the 1997 Session 

Laws enacted a ne^v sales and use tax exemption for certain 

reusable containers. The proposed change reflects this ne\v 

exemption. 

17 NCAC 7B .4301 - Chapter 392 of the 1997 Session Laws 

enacted a new tax on dry cleaner solvents. The refunds in 

G.S. 105-164.14 do not apply to this tax. This rule is 

amended to reflect this act and to make technical changes. 

Comment Procedures: Written comments may be submitted 
to Mr. Tim Holmes at North Carolina Department of 
Revenue, Sales and Use Tax Division, P.O. Box 871, 
Raleigh. NC 27602. Comments received will be taken into 
consideration in adopting the permanent rule. If you have 
questions, you may call Mr. Holmes at 919-733-2151. 

Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 7 - SALES AND USE TAX 

SUBCHAPTER 7B - STATE SALES AND 
USE TAX 

SECTION .0100 - GENERAL PROVISIONS 

.0104 RETURNS 

t^l Every p e r son engag e d in th e business of s e lling 

tangible p e r sonal pr o p erty at re tail o r making p u r chases 
sub j ect t o the use tax must file a r e p o r t fo r each r e p o r ting 
per iod showing g r oss sales and/o r r ecei pt s and an i t emization 
of all e xempt sal e s o r re c e i p ts which are no t included in the 
com p u t a t ion of tax du e . — R e por t s fo r p eriods in which no 
sales are made shall be mark e d "no sal e s." 

(b) A tax p aye r who is consist e n t ly liabl e fo r at l e as t tw e nty 
thousand dolla r s (520,000.00) per month in sta te and local 
sales and use t ax e s shall file a r e t u r n on a semimon t hly basis. 
The semimon t hly rep o rt ing p e r iods are th e fi r st day of each 
mon t h th r ough the 15th day of each month and the IG t h day 
of each mon t h th r ough the las t day of each month. — frt 
dciennii ' iing the amoun t of tax due from a tax p aye r fo r a 
r e p o r ting p e r iod, th e S e c re tan ' shall consid er t he total amoun t 
due from all p laces of busmcss owned and o p e r a te d by th e 
sam e per son as the amount due f r om that pe rson. 



tci — Taxpaye r s who are autho r ized to file an estimated 
r e p o rt for each o r both r e p o r ting p eriods shall file a r epo r t 
re fl e cting th e reon their estimated taxable recei p ts, r entals 
and/o r sales, — any — taxable p u r chases of tangible p e r sonal 
pr o p e r ty fo r sto r age, use o r consumption in this state and 
shall compu t e and p ay the amount of tax th e reon. Tax p ayers 
who have mo r e than one location in No r th Carolina and file a 
consolidated re por t with a sch e dule of stat e tax due by each 
location shall file such schedule with their e stimated rcpon. 
Also, tax p aye r s who r emi t county tax fo r mo r e than one 
county and file a schedule showing a b r eakdown of th e local 
tax due fo r e ach county shall file the schedule with th e i r 
estimated r e por t . 

i:&) — A person who engag e s e xclusiv e ly in the business of 
making wholesale sales is not re qui re d t o file monthly 
re p o rt s. — Howeve r , if in addi t ion to making wholesale sales, 
such p e r son makes taxable sales to use r s o r consumers or 
nom - egis te r e d m e rchants o r mak e s p urchases subject t o t h e us e 
tax, he is r equi r ed t o file semimonthly, monthly or quarterly 
re p orts — as — pr ovided — by — StSt — 105-164. IG — and — G.S. 



105-164.17. 

( e ) Ev er y p er son who p u r chas e s f r om ou t -of-state vendo r s 
taxable — tangible — p e r sonal — pr o p erty — for — sto r age. — tree — or 
consum p tion in this state u p on which the tax has not been 
fully p aid mus t fil e rep orts on a semimonthly, monthly o r 

St 
tfic 



quart er ly basis as pr ovid e d by G.S. 105-164.16 and G 
105-164.17 and r e p o rt all such pu r chases and r emi t 



a pp licable tax due the r eon. 
la] General. - G.S. 105- 



64.16 establishes the filing 



frequency of sales and use tax returns and the content of the 
returns. G.S. 105-164. 4(c) requires a retailer to register 
with the Department and obtain a license. G.S. 105-164.5(1) 
requires a wholesale merchant to register with the Department 
and obtain a license. G.S. 105-164.6 requires a retailer who 
delivers property for storage, use, or consumption but does 
not have a place of business in this State to register with the 
Department and obtain a license. A person who is engaged in 
business, is not other%vise required to file a sales and use tax 
return, and, on two or more occasions within a twelve-month 
period, purchases property subject to use tax must register 
with the Department and being filing sales and use tax 
returns. A person who is engaged in business, is not 
otherwise required to fije a sales and use tax return, and 
purchases property subject to use tax only once in a twelve- 
month period must file a return and pay the tax due within 15 
days after the end of the month in which the purchase was 
made. 

(b) Schedules. - A retailer who files an estimated return 
for a semimonthly reporting period that reports tax payabl e 
by more than one location in tlie State must attach two 
schedules to tfie return. One schedule must list the amount of 
State tax due for each location in tfie State and tlie other must 
list the amount of local tax due for each county. 

(c) No Sales or Purchases By Business. - A retailer who 
does not make any sales during a reporting period must file a 
return for that period and mark "no sales" on the return. 
Similarly, a person who is not a retailer but is engaged in 



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business, purchases tangible personal property for the 
business that is subject to use tax, and does not make any 
taxable purchases during a reporting period must file a return 
for that period and mark "no purchases" on the return. 

(d) Seasonal Business. - A retailer who engages in 
business for mx or fewer consecutive months in each year 
may register as a seasonal filer and indicate the months in 
which the retailer engages in business. A retailer who is 
registered as a seasonal filer is not required to file a return for 
an off-season reporting period in which the retailer did not 
engage in business. 

(e) Wholesale Merchant, zz A person who engages 
exclusively in tlie business of making wholesale sales is not 
required to file a return. A person who, on two or more 
occasions within a twelve-month period, either makes taxable 
sales to users, consumers, or nonregistered merchants or 
makes purchases subject to use tax is not engaged exclusively 
in the business of making wholesale sales and must begin 
filing sales and use tax returns. A wholesale merchant who is 
not required to file a sales and use tax return and who, on 
only one occasion within a twelve-month period, either makes 
taxable sales to users, consumers, or nonregistered merchants 
or makes purchases subject to use tax must file a return and 
pay the tax due within 15 days after the end of the month in 
which the sale or purchase was made. 

(f) Non-Business Use Tax. — An individual who is not 
en gag ed in the business of selling tan gible personal property 
at retail and who purchases for a non-business purpose 
tangible personal property that is subject to use tax must 
report the tax due on Form E-554. The return is due 
annually by the date set under G.S. 105-164.16. 

Authority G.S. 105-164.3; 105-164.16; 105-262. 

SECTION .0200 - GENERAL APPLICATION 

OF LAW TO MANUFACTURING AND 

INDUSTRIAL PROCESSING 

.0207 PURCHASES BY MANUFACTURERS 

Manufac t u r e r s making p u r chas e s of — t angibl e per s o nal 
p r op cny for s t orage, use — o r consump t ion in t his s t ate from 
su p pliers outside this s t a t e who d o no t coll e ct No r th Car o lina 
sal e s o r us e tax the re on are liable fo r p aymen t o f the us e t ax 
at the applicable rate di r ectly to th e Departmen t of Revenue 
unless such pu r chases are s pe cifically exem p t from tax. 
F r eigh t , deliv er y, o r o t he r t rans p ortation charg e s in any way 
connec t ed with such taxable pu r chases are subjec t to the 
a pp licable use tax. Such manufac t u rer s mus t r egis t er wi t h the 
De p a rt men t fo r use t ax p u r poses and r emi t such t ax di r ec t ly 
to the De p artment on a monthly basis. — Vendors engaged in 
btisiness in this sta t e are r equi r ed t o charge the a pp licable ra t e 
o f tax on thei r sales to manufac t u r ers. A manufacturer who 
purchases taxable tangible personal property for use in the 
business is subject to use tax. A manufacturer who owes use 
tax must report and pay the tax in accordance with the filing 
requirements for a wholesale merchant. This requirement 
applies even if the manufacturer is not required to obtain a 



license as a wholesale merchant. 

Authority G.S. 105-164.6; 105-164.13; 105-262. 

SECTION .0900 - ADVERTISING AND 

ADVERTISING AGENCIES: PUBLIC 

RELATIONS FIRMS 

.0901 ADVERTISING AND ADVERTISING 
AGENCIES 

(a) Adve rt ising Agency Rende r ing P ro f e ssi o nal Se r vices : 
Professional Services. ;; Advertising agencies are engaged in 
the business of rendering professional services when they 
produce adve r tising advertising, such as radio and television 
spots or newspaper, magazine magazine, or billboard 
advertising, and contract in their own behalf with radio and 
television stations, news p a p ers newspaper or magazine 
publishers, outdoor advertising com p ani e s companies, or 
other media for time or space to televise, broadcast, p ublish 
publish, or otherwise display their advertising. Receipts 
derived by advertising agencies from furnishing these 
professional services are not subject to sales or use tax. 
However, their purchases of taxable tangible personal 
property for use in producing sttch the advertising are subject 
to the four percent state tax and any applicable local sales or 
use tax. 

Such agencies A gencies rendering professional services rely 
on expertise in advertising strategy, media buying, and in 
graphic arts production in their specialized fields to secure 
and retain clients. Usually agreements to provide 
professional advertising services also have the following 
characteristics: 

(1) The agency selects or advises the client on the 
different kinds of advertising to be used. 

(2) The agency is primarily responsible for developing 
the concept or design of the advertising. 

(3) The agency produces or arranges for the production 
of the advertising. 

(4) The agency places or arranges for the placement of 
the advertising on radio or television stations or in 
newspapers, magazines magazines, or other media 
and the agency has purchased time or space in the 
media to display the advertising instead of 
delivering it to the client for placement or 
distribution. 

Advertising agencies are also engaged in the business of 
rendering services when they contract to do market research, 
consulting, statistical analysis, e t c.. which or other services 
that result only in a report of their findings to the client. 

The tax is due on all tangible personal property purchased 
by these agencies for use in the performance of the services in 
this Paragraph regardless of whether stich the property is 
acquired in the name or account of the advertising agencies or 
their clients. When adve rt ising ag e ncies make purchases o f 
Advertising agencies that, in performing these services. 
purchase paper, ink, printing plates, positives, negatives, 
color separations, photographs, filmed or recorded 



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1298 



PROPOSED RULES 



coi ' iim i MTials. commercials that are not exempt audiovisual 
masters, and any other tangible personal property us e d in 
p r oviding the refenrd to s er vices in this Paragraph from 
suppliers in North Carolina or from out-of-state suppliers 
who charge the applicable t ax. they shall tax must pay the tax 
due directly to their suppliers. WTicn adv e r t ising agen c ies 
nrakc — purchases — of Advenising agencies that purchase 
tangible personal proper t y property, from out-of-state 
suppliers who do not charge and remit the North Carolina 
s t ate and/or l o cal sales or use tax. t he adver t ising agencies 
applicable tax must remit the use tax due directly to the 
Depanment on the cost price of the propeny without any 
deduction on account of the cost of the materials used, cash 
discounts, labor or service costs, transportation charges 
charges, or any expenses whatsoever. 

(b) Adver t ising Agency Making Re t ail Sales : Retail Sales. 
;; Advertising agencies are d ee med considered to be retailers 
when they produce, cause to be produced, fabricate, purchase 
purchase, or otherwise acquire catalogs, magazines, 
handbills, brochures, programs, pamphlets pamphlets, or 
similar printed matte r , matter or any other tangible personal 
property which they sell and deliver to their clients or to 
others on behalf of their clients for delivery or distribution as 
advertismg material or for any use or purpose other than for 
resale. Advertising agencies making retail sales of tangible 
personal property — shatt property, other than exempt 
audiovisual masters, must collect and remit the four percent 
state tax and any applicable local sales or use tax on the sales 
price of sttdt the propeny whether it is prepared by the 
agency or acquired from outside sources. The sales price to 
which the tax applies is the total amount for which the 
tangible personal property is sold including all charges for 
services rendered in the production, fabrication, manufacture 
manufacture, or deliver)' of the property, such as charges for 
commissions, supervision, research, transportation charges, 
postage, telephone and telegraph messages, copy, models' 
fees, stage props, printing, printing plates, film, positives, 
negatives, transparencies and color separations separations, 
even though the agency may separately state stich the charges 
on the invoice rendered to the client and in the agency's 
records. 

(c) Adve rt ising Agency Retainer and Consul t ation Fees: 
Retainer and Consultation Fees. ;; Charges by advertising 
agencies to their clients for retainer fees which that are 
directly related to the p u r chase or purchase, acquisition, 
fabrication, or production and sale of tangible personal 
property are subject to sales or use tax. Charges by 
advertising agencies for retainer fees to their clients are 
generally paid in advance to cover future services and if no 
sale of tangible personal property is involved are not subject 
to sales or use tax. Consultation fees charged to clients in 
connection with oral or written repons only and not in 
connection with the sale of tangible personal property are also 
exempt from sales or use tax. Consultation fees that are 
directly involved in transactions which that require the 
purchase or purchase, acquisition, fabrication, or production 
and sale of tangible personal p ro p eny property, such as 



pamphlets and brochures brochures, are a part of the sales 
price and are subject to sales and use tax even though stich the 
fees may be separately stated on the customer's invoice. If an 
advertising agency is retained to perform market research, 
analysis of analyze statistics, and develop an advertising 
concept on which a report is presented, either orally or in 
writing to the client, the charges for these services are not 
taxable. After considering the report, if the client decides to 
pursue the advenising concept and contracts with the same 
agency to develop and produce advertising material to be 
placed on radio or television spots or in space in newspapers, 
magazines magazines, or on billboards, the agency shall 
must remit sales or use tax on its purchase of all taxable 
tangible personal propeny used in producing the advertising 
material. If the advertising concept calls for the production, 
fabrication, pu r chase purchase, or acquisition of catalogs, 
magazines, handbills, brochures, programs, p amphlets 
pamphlets, or similar printed matte r , matter or any other 
tangible personal property whidrthey sell and deliver to their 
clients or to others for their clients, the advenising agency is 
making retail sales subject to sales and use tax on the sales 
price of stich the propeny. The sales price to which the tax 
applies will include charges fo r those items and sep.'ices listed 
in t he las t sentenc e of Parag r aph (b) includes all the items 
and services described in Paragraph (b) of this Rule. 

(d) Advenising Agency Pu r chasing F or Resale : Purchases 
for Resale. ;; Purchases by advenising agencies of paper, mfc 
ink, and other tangible personal property which that become 
a part of tangible personal propeny sold by advertising 
agencies at retail or wholesale, including purchases for resale 
in the same form, are exempt from sales or use taxes when 
sttc+t the purchases are supported by properly completed 
Certificates of Resale, Form E-590, or other evidence in 
writing adequate to support the conclusion that the property is 
being purchased by a registered merchant for the purpose of 
resale. The term "part of tangible personal property" 
includes only those items that are incorporated into and 
become a pan of propeny sold and does not include those 
items which that are merely used or incidentally consumed in 
its production. For example, a photograph, transparency, 
printing plate, positive, negativ e negative, or color separation 
does not become an ingredient or component part of property 
sold even though the image thereon is reproduced as a pan of 
the propeny sold. 

(e) Advenising Agency Pu r chasing Fo r Use : Purchasing 
for Use. ::; Purchases by advertising agencies of film, printing 
plates, photographs, positives, negatives, transparencies, 
color separations separations, and similar tangible personal 
property for use in the production of advertising material are 
subject to the four percent state tax and any applicable local 
sales or use tax since such because the property does not 
become incorporated into or become a component pan of the 
property produced for sale. When advenising agencies 
purchase sttch items for use in the production of propeny for 
sale, they are the users or consumers of the propeny and stett 
must pay the state and local sales or use tax on the cost price 
without regard to the disposition which that may be made of 



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PROPOSED RULES 



stich the items by the advertising agency. 

(f) Advertising Agency Acting As Ag e nt Fo r A P r inci p al : 
Acting as Agent.— An agent is one who represents another, 
called the principal, with third parties. For sales and use tax 
purposes, to establish that a panicular acquisition is made by 
an agency as agent for its client and not on the agency's own 
behatfr behalf, all of the following must apply: 

(1) the— The agency must clearly disclose to the 
supplier the name of the principal for whom the 
agency is acting as agent and establish that it has 
the authority to bind the principal with respect to 
the purchase: purchase. 

(2) the The agency must be able to document that its 
status as agent existed prior to the acquisi t ion: and 
acquisition. 

(3) the Ihe price billed by the agency to the principal 
for the personal property, exclusive of any agency 
fee, must be the same as the amount paid to the 
supplier. 

(4) The agency may make no use of the property for its 
own account. 

An advertising agency shaH must remit the tax due on its 
purchases to suppliers within this state and suppliers outside 
this state who collect and remit No r th Carolina sales and/ or 
use t axes. — Wli e n an the applicable tax. An advertising 
agency that purchases tangible personal property on behalf of 
a principal from out-of-state suppliers who do not charge and 
remit the No rt h Carolina s t ate and/ or l o cal sal e s or use t ax, 
the adver t ising agency shall applicable tax must remit the use 
tax due, as agent for its principal, directly to the Department 
on the cost price of stich Uie tangible personal property 
without any deduction on account of the cost of the materials 
used, cash discounts, labor or service costs, transportation 
c harges charges, or any expenses whatsoever. 

All acquisitions by advertising agencies of tangible 
personal property such as catalogs, brochures, pamphlets, and 
the like are regarded as purchases by agencies on their own 
behalf for resale or for use unless the agency clearly 
establishes with respect to any acquisition that it is acting as 
agent for its principal pursuant to a prior express contract. 
An advertising agency purchasing tangible personal property 
as an agent on behalf of its client for the client's use may not 
issue its resale certificate to the supplier. I t will be pr esumed 
t ha t an An advertising agency which that issues its resale 
certificate to its supplier is presumed to be purchasing 
tangible personal property in its own behalf for resale and is 
TKrt rather than acting as agent for its principal. 

Authority G.S. 105-164.4; 105-164.6: 105-164. 13(22a); 
105-262. 

SECTION .1300 - SALES IN 
INTERSTATE COMMERCE 

.1301 OUT-OF-STATE DELIVERIES 

Sales within the state of tangible personal property which 
that the vendor delivers to the purchaser at a point outside the 



state, or which that the vendor delivers to a common carrier 
or to the mails for transportation and delivery to the 
purchaser or a donee at a point outside the state state, are not 
subject to the four pe r cen t state tax and any applicable state 
and local sales or use tax pr ovided if the property is not 
returned to a point within the s t ate, and pr ovided furthe r , that 
and the vendor furnishes acceptable proof of transportation to 
a point outside the state. The most acceptable proof of 
transportation and delivery to a point outside the state will b e : 
is any of the following: 

(1) a A waybill or bill of lading made out to the 
seller's order calling for delive r y : or delivery. 

(2) an An insurance or registry receipt issued by the 
United States Postal Service, or a postal service 
receipt; or receipt. 

(3) a A trip sheet that is signed by the seller's delivery 
agent and sh o wing shows the signature and address 
of the person who received the delivered goods 
outside the state. 

Authority G.S. 105-164.13; 105-262. 

SECTION .1400 - SALES OF MEDICINES: 
DRUGS AND MEDICAL SUPPLIES 

. 1404 MEDICAL SUPPLIES AND EQUIPMENT 

Sales to physicians, dentists, hos p itals hospitals, or other 
users or consumers of medical supplies, including such i te ms 
as c ot ton, gauze, adhesive tape, bandages atid o t he r d r essings 
and medical ins tr uments and equi p m e nt such as knives, 
needles, scissors, mic r osco p es, x- r ay machines and o t he r 
labo r a t o r y equi p ment used fo r tes t ing and diagnosis, and fo r 
th e pre v e n t i o n, t r ea t men t or cure of medical instruments, 
medical equipment, and laboratory equipment used to 
diagnose, prevent, treat, or cure disease are subject to the 
fou r p e r cent state tax and any applicable state and local sales 
or use tax. Items listed below are subject to tax: items not 
included in the list may also be subject to tax: 

(1) Adhesive tape 

(2] Alcohol 

(3) Bandages 

(4) Battery chargers 

(5) Bed pans 

(6) Betadine solution 

(7) Blood glucose monitors 

(8) Blood glucose test/reagent strips 

(9) Blood or urine control strips 

(10) Breathing circuits 

(1 1) CO/2 saturation monitors and accessories 

(12) Cotton 

(13) Crutch and cane holders 

(14) Cylinder tank carriers 

(15) Dial-a-dose insulin delivery devices 

(16) Dressings 

(17) Exam gloves 

(18) Gauze 

(19) Knives 



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PROPOSED RULES 



(20) I .V. hangers 

(21) I.V. poles 

(22) Lancets 

(23) Microscopes 

(24) Mouthpieces 

(25) Needles 

(26) Peak flow meters 

(27) Percussors 

(28) Pulse oximeters 

(29) Rollabout chairs 

(30) Scissors 

(31) Sterile water 

(32) Surgical gloves 

(33) Syringes 

(34) Tracheal suction catheters 

(35) Tracheostomy care kits 

(36) Tracheostomy cleaning brushes 

(37) Tracheostomy masks and collars 

(38) Tubing, sold by the linear foot or otherwise 

(39) Urinals 

(40) Urine test or reagent strips or tablets 

(41) X-ray machines 

Authority G.S. 105-164.4; 105-164.6; 105-262. 

SECTION .1600 - SALES TO OR BY 

HOSPITALS: EDUCATIONAL: CHARITABLE 

OR RELIGIOUS E^fSTITUTIONS: ETC.: AND 

REFUNDS THERETO 

. 1 602 REFUNDS TO NONPROFTT ENlIilES 
AND MEDICINES AND DRUGS 
PURCHASED BY HOSPITALS 

The refund provisions contained in this Rule do not 
to the tax on taxable sales by the nonprofit entities 
named in G.S. 105-164. 14(b) and no part thereof shall be 
refunded or claimed as a refund. Nonprofit entities registered 
for sales and use tax purposes may purchase the tangible 
personal property which they resell without paying tax 
thereon to their suppliers provided they have furnished such 
suppliers with properly executed Certificates of Resale, Form 
E-590. Certificates of resale may not be used by any 
nonprofit entity in making purchases of tangible personal 
property to be used or consumed by such purchaser. 

(b) All refund claims shall be substantiated by proper 
documentary proof and only the taxes actually paid by the 
claimant during the period for which the claim for refund is 
filed may be included in the claim. Any local sales or use 
taxes included in the claim shall be separately stated in the 
claim for refund. In cases where more than one county's tax 
has been paid, a breakdown shall be attached to the claim 
showing the amount of each county's local tax separately. 

(c) As to taxes paid on the claimant's purchases for use, 
other than those made by contractors performing work for the 
claimant, invoices or copies of invoices showing the property 
purchased, the cost thereof, the date of purchase and the 
amount of state and local sales or use tax paid during the 



(a) 
apply 



refund period shall constitute proper documentary proof. 

(d) To substantiate a refund claim for sales or use taxes 
paid on purchases of building materials, supplies, fixtures and 
equipment by its contractor, the claimant shall secure from 
such contractor certified statements setting forth the cost of 
the property purchased from each vendor and the amount of 
state and local sales or use taxes paid thereon. In the event 
the contractor makes several purchases from the same vendor, 
such certified statement shall indicate the invoice numbers, 
the inclusive dates of the invoices, the total amount of the 
invoices and the sales and use taxes paid thereon. Such 
statement shall also include the cost of any tangible personal 
property withdrawn from the contractor's warehouse stock 
and the amount of state and local sales or use tax paid thereon 
by the contractor. Similar certified statements by his 
subcontractors shall be obtained by the general contractor and 
furnished to the claimant. Any local sales or use taxes 
included in the contractor's statements shall be shown 
separately from the state sales or use taxes. The contractor's 
statements shall not contain sales or use taxes paid on 
purchases of tangible personal property by such contractors 
for use in performing the contract which does not annex to, 
affix to or in some manner become a part of the building or 
structure being erected, altered or repaired which is owned or 
leased by a nonprofit entity for use by a nonprofit entity 
named in G.S. 105-164. 14(b) for carrying on its nonprofit 
activities. Examples of property on which sales or use tax 
has been paid by the contractor and which shall not be 
included in the contractor's statement are scaffolding, forms 
for concrete, fuel for the operation of machinery and 
equipment, tools, equipment repair parts, equipment rentals 
and blueprints. 

(e) The refund provisions set forth in this Rule apply only 
to the nonprofit entities described in G.S. 105-164. 14(b), but 
do not apply to nonprofit fraternal, civic or patriotic 
organizations, notwithstanding that such organizations may 
perform certain charitable functions. The refund provisions 
set forth in this Rule do not apply to nonprofit entities which 
are owned and controlled by the United States, the state or a 
unit of local government except hospitals and medical 
accommodations created under the Hospital Authorities Law, 
Article 2 of Chapter 13 IE of the General Statutes and 
nonprofit hospitals owned and controlled by a unit of local 
government that elect to receive semiannual refunds under 
G.S. 105-164. 14(b) instead of annual refunds under G.S. 
105-164. 14(c). Any nonprofit hospital owned and controlled 
by a unit of local government may submit a written request to 
receive semiannual refunds under G.S. 105-164. 14(b) instead 
of aimual refunds under G.S. 105-164. 14(c). The request 
shall be effective beginning with the six-months refund period 
following the date of the request and applies to sales or use 
taxes paid on or after the first day of the refund period for 
which the request is effective. 

(f) The refund provisions of this Rule are not a pp licable do 
not apply to sales taxes incurred by employees on purchases 
of food, lodging lodging, or other taxable travel expenses 
paid by employees and reimbursed by the ty p e of non pr ofi t 



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enti t ies — named a nonprofit entity listed in G.S. 
105-164. 14(b). Sttch These expenses are personal to the 
employee sinc e because the contract for food, shelte r shelter. 
and travel is between the employee and the provider and 
payment of the tax is by the employee individually and 
personally. .Such n on p iwFi t entities have In this circumstance. 
a nonprofit entity has not incurred incurred and have not p aid 
any sales tax liabili t y. — In such cases, any sales tax liabilitv 
and has not paid any sales tax: instead: it has chosen to 
reimburse a personal expense of the employee. The refund 
provisions of this Rule do not apply to sales t ax p aid by t he 
nonprofit enti t ies named in G.S. 105-164. 14(b) on charges 
any of the following: 

(1) Charges by a utility for electricity, piped natural 
gas and local, toll or p r iva t e telecommunica t ions 
services; t o t he occupancy gas, and local, toll, or 
private telecommunications services. 

(2) Occupancy taxes levied and administered by certain 
counties and cities in this state; t o the pre p ared 
state. 

(3) Prepared food and beverage taxes levied by various 
local governments in North — Car o lina; — to — the 
highway this state. 

(4) Highway use taxes paid on the purchase, tease 
lease, or rental of motor vehicles; t o the vehicles. 

(5) The white goods disposal tax levied on new white 
goods. Such t axes shall n ot be included in any 
claim for refund filed by such n o n pr ofi t en t i t ies. 

(6) The dry-cleaning solvent tax levied on dry-cleaning 
solvent purchased by a dry cleaning facility. 

Authority G.S. 105-164.14; 105-262; 105-264. 

SECTION .1700 - SALES TO OR BY THE 

STATE: COUNTIES: CITIES: AND OTHER 

POLITICAL SUBDIVISIONS 

.1701 GOVERNMENTAL SALES AND 
PURCHASES 

(a) — Sales to the S t ate of No rt h Car o lina, coun t ies, ci t ies 
and p oli t ical subdivisions o r agencies the re of, e xc ept sales t o 
the D ep ar t men t of T r ans p o r ta t ion, of: 

ti) t angible p e r sonal pr o p e rt y no t s p ecifically exem pt 

by statu t e fo r the p urpose of use o r consum pt ion 
a r e subjec t to the fou r p ercen t s t a t e t ax and any 
a pp licable local sales o r use t ax ; 

fS) p i pe d natu r al gas; elect r ici t y and tecat 

telecommunications services are subjec t to th e three 
p e r cen t state tax; and 

(3) th e g r oss r eceipts derived f r om int r asta t e t oll and 

pr ivate tele p hone services are subj e ct t o t he six and 
one-half p e r cen t state tax. 
The exem pt ion fo r t he De p artm e n t of Transportation do e s no t 
extend t o sales of tangible pe r sonal pro p e rt y to contractors for 
use in the performance of cont r ac t s with t he Department of 
T r ans p o rt a t ion no r to sales of tangible p e r sonal pr op er ty to 
othe r sta t e agencies, local governments o r em p loyees of the 



Department of T r ansportation. — Sales of building ma t e r ials, 
supplies, fix t u r es and equipment t o con tr ac t o r s fo r use in the 
peifouiiancc of con tr ac t s with the fed er al governmen t o r any 
above r eferred to gove r nmental units or agencies ar e als o 
subject to th e sales or use tax. 

fb) — Wlien the State o f No r th Carolina, coun t ies, ci t ies, 
towns, and political subdivisions o r any agencies the r eof, 
with th e exception o f t he Department of T r ans por ta t i o n, make 
taxable pu r chases of t angible p e r sonal pr o perty from a No r th 
Ca r olina supplie r o r r egis t e r ed ou t -of-sta t e su pp lie r wh o 
charg e s the N or th Carolina and any applicable local sales o r 
use tax the r e o n, such gove r nmental unit or ag e ncy shall re mi t 

t he tax on such purchases t o the su pp lie r . Any — sttch 

gove r nmental unit o r agency making taxable p u r chases of 
t angible p e r sonal property f r om an out-of-s t ate su pp lier wh o 
does no t collect the No rt h Car o lina and any ap p licable local 
sales o r use tax thereon shall r egiste r wi t h the department and 

r emi t — monthly — the t ax due on such purchases. Any 

g o vernmen t al uni t o r agency so r equi r ed t o regis t er which 
does not owe any t ax f or a given m o nth shall file a re p o rt 
reflec t ing no tax due. 

(c) If any g o vermncn t al uni t o r agency r efe rr ed to in 
Pa r ag r a p h (b) o f t his r ule makes t axabl e re tail sales of 
t angible — pe r sonal — pr o p erty, — it — shaH — rcgistci — with — the 
d ep a rt ment and collect and r emi t the tax due on such sales. 
Th e re fund pro visions contained in G.S. 105-164. 14(c) d o 
no t a pp ly to t he t ax on such sales and n o p art t he r eof shall b e 
refunded o r claimed as a refund. — Gov er nm e n t al uni t s and 
agencies r egis t e r ed fo r sales and use t ax p ur p oses may 
p u r chase the t angible p ersonal pr o p erty which t hey r esell 
wi t h o u t p aying t ax the r eon to t hei r su pp lie r s pr ovided they 
have — f urnished — sttch — supplie r s — with — pr o p e r ly — ex e cut e d 
Ce rt ificates of Resale, Form E-5 9 0. — Certificates of resale 
shall n ot be used by any gove r nmen t al uni t or agency he r ein 
re f err ed t o, o r by any ot her vendee, in making p u r chases of 
t angible personal pr o p e rt y t o be used or consumed by such 
purchaser. 

(a) General. — Sales to and purchases by State 
governmental entities, such as the State of North Carolina. 
the political subdivisions of the State, and agencies of the 
State or a political subdivision of the State, are subject to 
applicable State and local sales and use taxes unless the sale 
or purchase is exempt from tax under G.S. 105-164.13. A 
governmental unit that sells tangible personal property at 
retail is considered to be a retailer. The reporting, payment, 
and other requirements that apply to a nongovernmental entity 
app ly to a governmental entity unless a law exempts the 
governmental entity from the requirement. 

(b) DOT. — Sales to the Department of Transportation are 
exempt from State and local sales and use tax. This 
exemption does not apply to sales of tangible personal 
property to contractors for use in the performance of 
contracts with the Department of Transportation nor to sales 
of tangible personal property to employees of the Department 
of Transportation. 

Authority G.S. 105-164.3; 105-164.4; 105-164.6; 105- 



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PROPOSED RULES 



164. 13: 105-262. 

.1702 REFUNDS TO COUNTIES, CITIES, AND 
OTHER GOVERNMENTAL ENTITIES 

(a) G.S. 105-164. 14(c) lists the governmental entities that 
are allowed an annual refund of sales and use taxes as well as 
the sales and use taxes for which a refund is allowed. The 
refund allowed under G.S. 105-164. 14(c) does not apply to 
taxes that are not refundable under Rule 7B .1602(f) of this 
Subchapter. Governmen t al en t i t ies, as d e fined by G.S. 
105- 164. 14(e). are e n t i t led to an annual r e f und of sales and 
use t axes paid by t hem on thei r di r ec t purchas e s of t angible 
personal — proper t y. — subject t o the terms and condi t ions 
he r eafte r se t f ort h. The r efund p r ovisi o ns o f t his Rule are no t 
ap p licable to sales t a.xes incurred by empl o yees on p u r chases 
o f f oo d, lodgings o r other t axable t ravel ex p enses p aid by 
em p loyees and reimbursed by gove r nmen t al e nti t i e s. — Such 
ex p enses arc p e r sonal to the empl o ye e since the c o n tr ac t fo r 
food, shel t er and t r avel is between t he em p loyee and the 
pr ovide i — and — p aymen t of the t ax — is by — the — employee 
individually and per sonally. The governmen t al en t i t y has no t 
paid any sales t ax liabili t y. — In such cases, i t has chosen to 
r eimbu r s e a p er sonal expense t o the em p loyee. — Th e r e fund 
provisions of t his Rule d o no t ap p ly to sales t axes p aid by the 
governmen t al — e n t i t i e s — named — in — GrS: — 105-164. 14(c) — on 
cha r g e s by a u t ili t y for elect r ici t y, p i p ed na t u r al gas and 
l oc al, t oll or pr iva t e t elecommunica t ions s er vic e s: t o t he 
o ccu p ancy t axes levied and adminis t ered by coun t ies and 
ci t ies in t his s t a t e: t o t he pr e p ared fo o d and beve r age t axes 
levi e d by vari o us local governments in Nor t h Carolina; t o the 
highway use t axes p aid on t he p u r chase, lease o r r en t al of 
m ot o r vehicl e s: to t he scrap t ire dis p osal tax levied on new 
tir e s: or to th e whi t e go o ds dis p osal t ax levied on new whi te 
g oo ds. — G o ve r nmen t al en t i t ies, as d e fin e d, and t he Federal 
G o ve r nmen t a re en t i t led to annual r efunds of sales and us e 
t axes paid in N o r t h Ca ro lina by t h e i r c o ntrac t o r s on purchases 
o f bu i lding ma t e r ials, supplies. Fix t u r es and equipment which 
b e com e a p ar t of or a r e annexed t o any building o r s tr uctur e 
being e r ected, alte r ed o r r e p ai re d und er con tr act with such 
gov e rnmen t al en t i t ies which is owned o r leased by such 
g o ve r nmen t al e n t i t ies for th e i r us e . 

(b) Nonprofit hospitals owned and controlled by a unit of 
local government may file claims for refund of sales and use 
taxes on a semiannual basis under the provisions of G.S. 
105-164. 14(b) rather than file annually as a pan of the local 
government. In order to file semiannually, the hospital shall 
submit a written request to the Secretary of Revenue and the 
request shall be effective beginning with the six-month refund 
period following the date of the request and applies to sales 
and use taxes paid on or after the first day of the refund 
period for which the request is effective. 

(c) All refund claims must be substantiated by proper 
documentary proof and only those taxes actually paid by the 
claimant during the fiscal year covered by the refund claim 
may be included in the claim. Any local sales or use taxes 
included in the claim must be separately stated in the claim 
for refund. In cases where more than one county's sales and 



use tax has been paid, a breakdown must be attached to the 
claim for refund showing the amount of each county's local 
tax separately. 

(d) As to taxes paid by governmental entities on purchases 
for use. other than those made by contractors performing 
work for the claimant, invoices or copies of invoices showing 
the property purchased, the cost thereof, the date of purchase, 
the amount of state and local sales or use tax paid thereon and 
a record reflecting the date of payment shall constitute proper 
documentary proof. 

(e) To substantiate a refund claim for sales or use taxes 
paid on purchases of building materials, supplies, fixtures, 
and equipment by its contractor, the claimant shall secure 
from such contractor certified statements setting forth the cost 
of the property purchased from each vendor and the amount 
of state and local sales or use taxes paid thereon. In the event 
the contractor makes several purchases from the same vendor, 
such certified statement shall indicate the invoice numbers, 
the inclusive dates of the invoices, the total amount of the 
invoices, and the state and local sales and use taxes paid 
thereon. Such statement shall also include the cost of any 
tangible personal property withdrawn from the contractor's 
warehouse stock and the amount of state and local sales or use 
tax paid thereon by the contractor. Similar certified 
statements by his subcontractors shall be obtained by the 
general contractor and furnished to the claimant. Any local 
sales or use taxes included in the contractor's statements shall 
be shown separately from the state sales or use taxes. The 
contractor's statements shall not contain sales or use taxes 
paid on purchases of tangible personal property purchased by 
such contractors for use in performing the contract which 
does not annex to, affix to or in some manner become a part 
of the building or structure being erected, altered or repaired 
that is owned or leased by a governmental entity for use by 
the governmental entity as defined by G.S. 105-164. 14(c). 
Examples of property on which sales or use tax has been paid 
by the contractor and which shall not be included in the 
contractor's statement are scaffolding, forms for concrete, 
fuel for the operation of machinery and equipment, tools, 
equipment repair parts, equipment rentals and blueprints. 

Authority G.S. 105-164.14; 105-262. 

.1703 SALES TO STATE 

Sales of food pr oduc t s and o t her tangibl e p e r sonal property 
to th e S t a t e of N ort h Carolina, i t s p oli t ical subdivisions or 
ag e nci e s fo r us e and not fo r r esale are subject t o t he four 
percent s t a te tax and any applicable local sales or use tax. 

Authority G.S. 105-164.4: 105-164.6: 105-262. 

SECTION .1800 - HOSPITALS AND 
SANITARIUMS 

. 1 80 1 SALES TO AND BY HOSPITALS AND 
SIMILAR INSTITUTIONS 

(a) Hospitals, sanitariums, nursing homes and rest homes 



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PROPOSED RULES 



are primarily engaged in rendering services and are deemed to 
be the users or consumers of all tangible personal property 
which they purchase for use in coimection with the operation 
of such institutions. Hospitals, sanitariums, nursing homes 
and rest homes are liable for payment of sales or use tax on 
their purchases of such property except as hereinafter set 
forth. 

(b) Hospitals, sanitariums, nursing homes and rest homes 
are deemed to be the users or consumers of drugs or 
medicines which they administer to patients. Purchases by 
hospitals, sanitariums, nursing homes and rest homes of 
drugs or medicines, other than insulin, for use are subject to 
the four percent state tax and any applicable local sales or use 
tax. Sales of insulin are exempt from sales or use taxes 
whether or not sold on prescription. If, in addition to using 
drugs or medicines in administering to patients, a hospital, 
sanitarium, nursing home or rest home operates a pharmacy 
from which it makes across the counter sales of medicines and 
drugs, and all purchases of medicines and drugs by such 
institution are made through the pharmacy, then the drugs or 
medicines may be purchased without payment of tax to 
suppliers provided the institution is registered with the 
Department of Revenue for sales or use tax purposes and has 
furnished the suppliers with properly executed Certificates of 
Resale, Form E-590. By executing the certificate of resale, 
the institution assumes the liability for payment of and must 
pay directly to the department all sales or use taxes due on 
drugs and medicines which are used by the institution in 
administering to and caring for its patients. Sales of drugs 
and medicines by the pharmacy on prescription of physicians 
and dentists are exempt from tax. Sales of drugs and 
medicines without written prescriptions of physicians or 
dentists are subject to the four percent state tax and any 
applicable local sales or use tax; except sales of insulin are 
exempt from sales or use tax whether or not sold on 
prescription. Sales of drugs and medicines, other than 
insulin, to physicians and dentists who administer the same to 
their patients in rendering professional services are also 
subject to the four percent state tax and any applicable local 
sales or use tax. 

(c) Purchases by hospitals, sanitariums, nursing homes 
homes, or rest homes of foodstuffs for use in furnishing 
meals to patients are subject to the f o u r p e r cen t sta te t ax and 
any applicable state and local sales or use tax. If, in addition 
to furnishing meals to patients, a hos p i t al, — sani t arium, 
nu r sing home o r r es t home one of these institutions operates a 
cafeteria from which it makes sales of prepared meals or 
foods to guests, visitors, employees, staff staff, or other 
p e r sons such persons, the institution must register with the 
Department of Revenue and collect and remit the tax on its 
sales. If the foodstuffs purchased by such the institution for 
use in furnishing meals to patients cannot be distinguished 
from those purchased for resale through the cafeteria, the 
h o s p ital, sani t ai ' ium, nu r sing hom e o r r es t home institution 
may purchase all the foodstuffs under a certificate of resale. 
The hospital, sanitarium, nu r sing home o r r es t home thus An 
institution that does this assumes liability for payment of the 



f o u r p e r cen t s t ate tax and any ap p licable loca l sales or use tax 
on foodstuffs used in furnishing meals to its patients and the 
four percent sta t e tax and any a pp licable local sales tax on 
sales of meals by the cafeteria. 

(d) If a hospital is operated by a state or private 
educational institution and serves meals and food products to 
student nurses, such sales are exempt from tax in accordance 
withG.S. 105-164.13(27). 

(e) Except as provided by Paragraphs (b) and (c) of this 
Rule, Certificates of Resale, Form E-590, may not be used by 
hospitals, sanitariums, nursing homes or rest homes when 
making taxable purchases of tangible personal property for 
use or consumption. The tax due on taxable purchases from 
North Carolina suppliers or out-of-state suppliers who charge 
North Carolina sales or use tax must be paid to the suppliers. 
Hospitals, sanitariums, nursing homes or rest homes which 
make taxable purchases from out-of-state suppliers who do 
not collect and remit North Carolina sales or use tax thereon 
must register with the department and remit monthly the tax 
due on such purchases. 

Authority G.S. 105-164.4; 105-164.6; 105-262. 

.1802 REFUNDS TO HOSPITALS AND 
SIMILAR INSTITUTIONS 

(a) Hospitals, sanitariums, religious institutions and 
organizations, charitable nursing homes, and charitable rest 
homes not operated for profit are entitled to semiannual 
refunds of sales and use taxes paid by them on their direct 
purchases of tangible personal property, including medicines 
and drugs, for use in carrying on their work. For the purpose 
of the refund, sales or use taxes paid by contractors on their 
purchases of building materials, supplies, fixtures and 
equipment which become a part of or are aimexed to a 
building or structure being erected, altered or repaired under 
contract with such hospitals, sanitariums, charitable nursing 
homes and charitable rest homes that is owned or leased by 
such institutions and used in carrying on their nonprofit 
activities are deemed to be taxes paid on direct purchases. 

(b) As to taxes paid on purchases for use other than those 
made by contractors performing work for the claimant, 
invoices or copies of invoices showing the property 
purchased, the cost thereof, the date of purchase and the 
amount of sales or use tax paid thereon during the refund 
period shall constitute proper documentary proof. To 
substantiate a refund claim for sales or use taxes paid on 
purchases of building materials, supplies, fixtures and 
equipment by its contractor, the claimant shall secure from 
such contractor certified statements setting forth the cost of 
the property purchased from each vendor and the amount of 
sales and use taxes paid thereon. In the event the contractor 
makes several purchases from the same vendor, the certified 
statements may indicate the invoice numbers, the inclusive 
dates of the invoices, the total amount of the invoices and the 
sales or use taxes paid thereon in lieu of an itemized listing of 
each separate invoice. The statements shall also include the 
cost of any tangible personal property withdrawn from the 



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January 15, 1998 



1304 



PROPOSED RULES 



contractor's warehouse stock and the amount of sales or use 
tax paid thereon by the contractor. Similar certified 
statements by his subcontractors shall be obtained by the 
general contractor and furnished to the claimant. 

(c) Sales and use taxes paid by hospitals, sanitariums, 
charitable nursing homes and charitable rest homes which are 
agencies of counties and incorporated cities and towns on 
their direct purchases of tangible personal property, including 
medicines and drugs, and by their contractors on purchases of 
building materials, supplies, fi.xtures and equipment 
becoming a part of or annexing to a building or structure 
being erected, altered or repaired under contract with such 
institutions that is owned or leased by such institutions for 
their own use are also refundable; however, such refund shall 
be included in the claim filed by the county or incorporated 
city or town which is to be filed within six months after the 
close of the claimant's fiscal year. The documentary proof as 
explained in Paragraph (b) of this Rule shall be submitted to 
the county or incorporated city or town filing the claim. The 
refund provisions are not applicable to hospitals, sanitariums, 
charitable nursing homes and charitable rest homes which are 
agencies of the state or any political subdivisions thereof 
other than counties and incorporated cities and towns. 
Nonprofit hospitals owned and controlled by a unit of local 
government may file for a refund on a semiaimual basis under 
G.S. 105-164. 14(b) rather than file annually as a part of the 
local government unit. In order to file semiaimually, the 
institution shall submit a written request to do so to the 
Secretary of Revenue and the request is effective beginning 
with the six-months refund period following the date of the 
request and applies to sales and use tax paid on or after the 
first day of the refund period for which the request is 
effective. 

(d) The refund provisions set forth in Paragraphs (a), (b) 
and (c) of this Rule are not applicable to taxes paid by 
hospitals, sanitariums, religious institutions and 
organizations, charitable nursing homes and charitable rest 
homes on their taxable sales and these taxes shall not be 
refunded or claimed as a refund. The refund provisions are 
not applicable to sales tax incurred by employees on 
purchases of food, lodgings or other taxable travel expenses 
paid by employees and reimbursed by the institution. Such 
expenses are personal to the employee since the contract for 
food, shelter and travel is between the employee and the 
provider and payment of the tax is by the employee 
indi\idually and personally and such tax shall not be refunded 
under the provisions of this Rule. The institution has 
incurred and paid no sales tax liability. In such cases, it has 
chosen to reimburse a personal expense of the employee. 

(e) The refund provisions se t forth in Parag r a p hs (a), (b) 
and (c) of this Rul e arc not a pp licable t o sal e s taxes p aid by 
hospitals. — sani t ariums. — chari t abl e — nu r sing — homes — and 
c haritable rest homes on charges b> a utili t y fo r elec t ricity, 

p iped na t ural gas ;md l o cal, toH or pr iva t e 

telecommunications sc r i, ' iccs: to t he occu p ancy t ax e s l e vi e d 
and adminis t ered by ccnain counties and ci t ies in this state, to 
the pr epared food and b e v er age ta.\cs levied by various local 



governmen t s in North Car o lina; t o the highway use taxes paid 
o n the purchase, lease or rental o f m o tor vehicles; t o the 
scra p ti re dis po sal t ax levied on new t ires; or to the white 
g oo ds dis po sal tax levied o n whi t e go o ds, in this Rule do not 
apply to taxes that are not refundable under Rule 7B .1602(f) 
of this Subchapter. 

Authority G.S. 105-164.14; 105-262; 105-264. 

SECTION .2200 - FOOD AND FOOD 
PRODUCTS FOR HUMAN CONSUMPTION 

.2201 FOOD AND FOOD PRODUCTS 

(a) All retail sales of food or food products are subject to 
the f o u r p ercent state and any applicable state and local sales 
or use tax unless there is an exem p tion o r exclusion provided 
in the s t a t u t es, a statute exempts the sales from tax. 

(b) The schools, institutions and organizations making 
exempt sales in accordance with G.S. 105-164.13(26), (26a) 
and (27) will not be required to register with the Department 
and, therefore, unless otherwise required to register by reason 
of making other sales or purchases subject to the sales or use 
tax, cannot furnish certificates of resale. Form E-590, to their 
suppliers. When making purchases of food products to be 
sold, such nonregistered schools, institutions and 
organizations must furnish their suppliers with information to 
the effect that the food products purchased are to be sold in 
connection with their school lunchroom programs or their 
dining rooms, and the suppliers must enter such information 
on their records and on the sales invoices. Otherwise, such 
transactions may be subject to the tax. Registered schools, 
institutions and organizations shall furnish properly executed 
certificates of resale. Form E-590, where applicable. 

(c) Every retailer shall keep and preserve suitable records 
of gross income, gross receipts and/or gross receipts of sales 
of such business and such other books or accounts as may be 
necessary to determine the amount of tax for which he is 
liable. Retailers shall keep separate records disclosing sales 
of tangible personal property taxable under G.S. 105-164.4 
and sales transactions not taxable because exempt under G.S. 
105-164.13 or elsewhere excluded from taxation. Unless 
such records shall be kept, the exemptions and exclusions 
shall not be allowed and it shall be the duty of the Secretary 
or his authorized agents to assess a tax upon gross sales at the 
rate levied upon retail sales; and if records are not kept 
disclosing gross sales, it shall be the duty of the Secretary to 
assess tax based upon the best information available. 

Authority G.S. 105-164.4; 105-164.5; 105-164.13; 105-262. 

.2212 SEA FOODS 

A person who purchases fish or other seafood and sells 
them it at retail is liable for the fou r p e r cen t s t a t e tax and any 
applicable state and local sales or use tax due on such sales. 
the sale. 

Authority' G.S. 105-164.4; 105-164.13; 105-262. 



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12:14 



PROPOSED RULES 



SECTION .3100 - RADIO AND TELEVISION 
STATIONS: MOTION PICTURE THEATERS 

.3104 BROADCASTING ACCESSORIES 

Sales of slide or film projectors, screens, and photographic 
supplies and equipment, including cameras, bulbs, film, 
blank videotape cassettes, chemicals, p a p er paper, and other 
photographic developing equipment to television companies 
operating under the regulation and supervision of the Federal 
Communications Commission are subject to the one percent 
rate of tax with an eighty dollar ($80.00) maximum tax per 
article when stich the items are used in producing pictures and 
similar material used in the programming of the television 
station. This Rule has no application to sales of the above 
items to amateur or commercial photographers. 

Authority G.S. 105-164.4; 105-164.6; 105-262. 

SECTION .3300 - ORTHOPEDIC 

.3301 EXEMPT ORTHOPEDIC APPLIANCES 

Sal e s of Clutches, ar t ificial limbs, ar t ificial eyes, hearing 
aids. — false t eeth, — eyeglasses ground o n prescrip t i o n o f 
p hysicians or opt ome t rists, pulm o naiy respira to rs s o ld o n 
pr esc r i p ti o n o f p hysicians, whe t her w or n on the person or 
n o t, and ot he r o rthopedic a pp liances when the same are 
designed t o be w o rn on the p ers o n o f the o wner or user, ai ' c 
e x e mp t from t ax. Tli e teim "orthopedic a pp liances" includes 
headgear, b o ws, neckst r a p s, wires, bands, brackets, r ubber 
bands and jacksc r ews when such i te ms are p u r chased by 
orth o d o ntists to be assembled in to vari o us ty p es o f a pp liances 
t o be w o rn on t he pers o n o f t he o wner or use r . I t ems which 
are deemed to be t ax exemp t o rth o pedic a p pliances arc se t 
forth in t his Rule f or illus tr ative p u rpo ses : 

(i-) abd o minal bel t s; 

(2) artificial n o ses and ears; 

O) — cervical braces; 
(4) — clavicl e s p lin t s; 
t5) — crutch t ips; 
(6) — c r utch e s: 

f?) d or s o lumbar supp o rts; 

fS) elas t ic ankl et s; 

(9) — elastic arch binde r ; 
fW) — elas t ic arch b r ace; 
ftt^ — elastic bandag e , 
"(i^-) — elastic hose; 
fi3) — elas t ic wrist bands; 
tM) — head hal te rs; 



ti5) invalid walkers; 

fW) — lumbosacral su pp o rt s; 

i¥t) materni t y supports; 

f+8) — obturators fo r cleft palate, 
(+9) — pos t -operative supports, 

-(26^ r ib s p lints; 

•t2-H sac r oiliac sup p orts; 

(22) shoulder braces; 



(23) spinal b r aces; 

(24) stiykcr frames; 

(25^ sus pe ns or ies; 

(26) t r ac t ion d e vices; 

(2?) tr usses ; 

(28) walking canes; 

■(29) wheel chairs; 

■(90) — hip pr os t hesis; 
■(3-i^ — bone nails; 

(32) artificial heart valves; 

(99) artificial arte r ies; 



(94) i r on lungs; 

(95) c er vical neck collai ' s; 

(96) leg b r aces; 

(9?) os t omy bags, discs, t ubes and belts (bu t not os to my 

sup p lies, such as cemen t s and r emove r s, p owde r s, 
germicides o r similar su p plies); 

■(99) artificial limbs. 

(a) A ppliances. -- G.S. 105-164.13(12) exempts from sales 
and use tax orthopedic appliances designed to be worn by the 
purchaser or user. These appliances are exempt regardless of 
whether they are sold on prescription. The items in the 
following list are exempt from tax as an orthopedic appliance: 
an item not included in the list may also be exempt from tax: 
UQ abdominal belt: 

(2) artificial artery, ear, leg or other limb, heart valve. 
or nose: 

(3) battery for an orthopedic appliance: 

(4) braces of the following types: cervical, leg, rib, 
shoulder, or spinal; 

(5) bone nail: 

(6) canes and repair and replacement parts for canes: 

(7) cervical neck collar: 

(8) crutches and repair and replacement parts for 
crutches: 

(9) elastic arch binder, arch brace, bandage, hose, or 
wrist band: 

(10) gastrostomy extension or replacement kits: 

(11) head halters: 

(12) hearing aids: 

(13) helmets for use by cerebral palsy patients: 

(14) hip protheses: 

(15) humid vents for tracheostomies: 

(16) infusion sets for external insulin pumps: 

(17) iron lungs: 

(18) nasal cannulas: 

(19) obturator for cleft palate: 

(20) ostomy bag, disc, tube, or belt, but not an ostomy 
supply such as cement, remover, powder, or 
germicide: 

(21) positioners of the following types: prone or side 
lying: 

(22) splints of the following types: clavicle or rib: 

(23) stryker frame: 

(24) supports of the following types: dorsolumbar. 
lumbosacral. maternity. postoeprative. or 
sacroiliac: 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1306 



PROPOSED RULES 



£25i 
(26) 
(27) 
(28> 
(29) 

(30) 



suspensones: 

tracheostomy inner cannula: 
traction frames and equipment: 
trusses: 

tubes of the following types that are implanted in 
the body: tracheostomy or laryngectomy: 
walkers for inyalids and repair and replacement 
pans for the walkers and attachments and 
accessories designed specifically for the walkers: 
(31 ) wheel chairs and other travel chairs, repair or 
replacement pans for the chairs, attachments and 
accessories, such as cushions, designed specifically 
for the chairs, and pressure pads, whether air, 
water, gel, or dry, designed specifically for the 
chairs, 
(b) Onhodontic Materials. - The following items are 
exempt as onhopedic appliances when they are purchased by 
an orthodontist to be assembled into an appliance to be worn 
by a patient: 
(1) bows: 
£2] bands: 

(3) brackets: 

(4) headgear: 

(5) jakscrews: 

(6) neckstraps: 

(7) wires. 



Authority G.S. 105-164.13; 105-262. 

.3302 EXEMPT THERAPEUTIC, PROSTHETIC, 
OR .\RTinCI.\L DEVICES 

Vendo r s — making — sales — of — the r a pe utic, — p r osthetic. — m 
a rt ificial devices p ursuan t t o wri tt en prescriptions must kee p 
sal e s re c or ds which clearly seg r ega t e such pr escri pt ion sal e s. 
All o r iginal p r e sc r ip t ions mus t be fil e d and ke pt available for 
ins p ection by the Sec r e t ars ' of R e venue or his autho r iz e d 
agen t . — Th e i te ms listed in this Rule are no t ortho pe dic 



a pp lianc e s within the m e aning of G.S. 105-164.13(12) and 
a r e subjec t to the fou r p e r c e n t stat e and any a pp licable local 
sal e s o r us e t ax when sold t o use r s o r consume r s in this s t ate 
unless sold p u r suan t to a writ t en prescri pt ion : 

Hi a t hle t ic supponer. 

t2i ball foot cushions: 

Ol bunion pr otector. 

f+) bunion r educer: 

t5i foot cushion: 

(6l heel cushions: 

f?^ shoe insoles: 

tBi — toe flex: 

(91 walk st r ate p ads; 

fiOl w^tgs: 

f+H hea t ing pads. 

t^"2i hea t lamps, 

t+3l o xygen regulators (medical); 

t++i oxygen ten t s. 

t+^l va p orizers. 

(ai Devices. ;; G.S. 105-164.13(12) exempts from sales 



and use tax therapeutic, prosthetic, or anificial devices that 
are designed for individual personal use to correct or alleviate 
physical illness, disease, or incapacity and are sold on 
prescription. The items in the following list are exempt from 
tax as a therapeutic, prosthetic, or artificial device when sold 
on prescription: an item not included in the list may also be 
exempt from tax when sold on prescription: 



LU 

Oi 
ill 
(4i 

(5) 
I6i 
ill 
(8i 

m 

(10) 

ou 
nil 

Oii 



(14) 



tiSi 

(16) 
07) 



(19) 
(20) 

an 

122) 
1231 
1241 
1251 
(26) 
1271 
(28) 
(29) 
(30) 
llii 
I32j 
1331 
1341 



(35) 
(36) 



administration sets, sanll volume non-filtered 
pneumatic nebulizer 
aerosol mask used with D.ME nebulizer 
ambu resuscitator 

apnea monitors and electrodes and lead wires used 
with the monitors 
athletic supponer 
bath or shower seats 
bathtub transfer benches 

batteries or battery cables for a device included in 
this list 
bed cradles 
bedside rails 

bunion protector or reducer 
commode chairs 

compressors and other air power sources for a 
device in this list or for use in administering 
medication 

continuous positive airway pressure (CPAP) 
devices, including intermittent assist devices that 
have CPAP devices and chin straps, filters, whether 
disposable or nondisposable. headgear, nasal 
application devices, nasal pillows or seals, and 
tubing used with the devices 
enteral feeding supply kits, whether syringe, pump- 
fed, or gravity-fed 
enteral pumps 

external insulin pumps, adaptors, piston rods, and 
batteries 

filters that are disposable and are used with aerosol 
compressors 

foot cushions, including ball o' foot cushions 
heat lamps 

heated humidifier systems 
heating pads 
heel cushions 
home phototherapy beds 
hospital beds 
humidifiers 

infusion pumps, whether parenteral or another type 
IRPB machines 
isolettes 

mattresses, whether spring, foam, or pressure 
nebulizers 

osteogenesis stimulators that are noninvasive 
oxygen and water vapor enriching s\'stems 
ox\gen concentrators. regulators, systems, 

whether liquid or gas, and tents 
paraffin bath units 
passive motion exercise devices 



1307 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



PROPOSED RULES 



(37) 
(38) 



patient lifts, whether sling or seat 



pressure pads, whether with or without a pump, for 
beds 

(39) shoe insoles 

(40) small volume non-filtered pneumatic nebulizer 

(41) spacer bags or reservoirs for use with metered dose 
inhalers 

(42) suction pumps 

(43) toe flex 

(44) toilet seats that are raised 

(45) transcutaneous electrical nerve stimulator (TENS) 
and supplies such as electrodes and lead wires 

(46) transfer boards 

(47) trapeze bars and grab bars 

(48) ultraviolet lights 

(49) vaporizers 

(50) ventilators 

(51) walk strate pads 

(52) whirlpools that are single-person or over-the-tub 

tyee 

(53) wigs 

(54) athletic supporter 

(b) Records. - A vendor who sells therapeutic, prosthetic. 
or artificial devices pursuant to a written prescription must 
keep sales records that clearlv segregate these sales. The 
vendor must keep the original prescription for inspection by 
the Secretary of Revenue or an agent of the Secretary. 

Authority G.S. 105-164.13; 105-262. 

.3303 APPLIANCES IMPLANTED IN PATIENTS 

Sales of hi p pr osthesis, bone nails, artificial hear t valves 
and artificial arte r ies which arc t o be permanen t ly implanted 
in pa t ien t s, come wi t hin th e sco pe o f t h e e x e m p tion f r om t ax 
provided by G.S. 105-164.13(12). 

Authority G.S. 105-164.13; 105-262. 

.3304 PROTECTIVE HELMETS FOR 
PATIENTS 

P r otec t ive helmets for use by c ere bral palsy p a t ients are 
deemed to be o r tho p edic a pp liances and are exempt from tax. 

Authority G.S. 105-164.13; 105-262. 

.3305 HEARING AIDS 

H e a r ing aids and batteries th ere fo r , when the same are 
design e d t o b e worn on the p e r son of the owner or user, are 
consid ere d to be o rt ho p edic a pp liances and exempt from tax. 

Authority G.S. 105-164.13; 105-262. 

.3306 INVALID WALKERS: WALKING CANES 

Unde r the pr ovisions of G.S. 105-164.13(12) c r u t ches a r c 
s p ecifically ex e mp t f r om tax and t he definition of the term 
c r u t ches is b r oad enough t o include invalid walkers and 
walking canes. These items are therefore exempt from tax. 



Authority G.S. 105-164.13; 105-262. 

SECTION .3900 - CONTAINERS: WRAPPING: 
PACKING AND SHIPPING MATERIALS 

.3901 CONTAINERS: WRAPPING: 
PACKING AND SHIPPING 
MATERIALS 

(a) Sales to manufacturers, producers, wholesalers 
wholesalers, and retailers of wrapping paper, labels, bags, 
cartons, and the other items specified in G.S. 
105-164.13(23)3^ are not subject to the tax when such 
mat e rials if they are used for packaging, shipping, or 
delivering tangible personal property sold at wholesale or 
r e t ail, and when such mat e rials retail and they constitute a 
part of the sale of such t angible p e r sonal the property and are 
delivered with it the property to the customer. The Except 
for the items described in Paragraph (b) of this Rule, this 
exemption does not apply to items which that are used solely 
for delivery purposes and which do not become a part of the 
sale of tangible personal property. 

(b) Sales of any such items of tangible personal pr o p e rt y to 
p e rsons who use t he same in r ende r ing se r vices and all oth er 
sales of any such items of tangible p e r sonal prope r ty which 
a r e used fo r any p u rp ose oth er t han t o accompany the sale o f 
tangible p e r sonal pr o p erty ai ' e subjec t to t he fou r p e r cen t sta t e 
tax and any applicable local sales o r use tax, exce pt t hos e 
sales to commercial laund r ies o r to pr essing and d r y cl e aning 
p lan t s which are tax e x e m p t unde r G.S. 105-164.13(10), sales 
to f ree z er locke r p lants of wra pp ing pa p er, ca r tons and othe r 
supplies which a r c taxed at t he r ate of one per cen t under G.S. 
105-164. 4(a)(lc)f and sales of con t aine r s to fajincrs or 
producers for us e in plan t ing, pr oducing, hai - ves t ing, cu r ing, 
ma r ke t ing, p ackaging, sale, o r tr ans p o rt ing o r deliv er y o f 
thei r pr oduc t s when such containe r s do no t go with and 
become p ar t of th e sal e of t h e ir p r oducts at wholesale o r r etail 
which — arc — taxed — a t the r ate of one p e r cen t und er the 
p r ovisions of G.S. 105-164. 4(a)(ld)i. Sales of containers, 
such as barrels and drums, that are used to package tangible 
personal property for delivery to the customer and are 
returned to the owner for reuse are not subject to tax. 

Authority G.S. 105-164.4; 105-164.6; 105-164.13; 105-262. 

.3910 RETURNABLE CONTAINERS 

When a vendor sells tangible personal property in 
returnable containers without a charge being made for the use 
of the containers for a specified time but, at the expiration of 
the specified time, the containers enter a demurrage period 
and a penalty charge is made as an inducement for the return 
of the containers, such the charges are incidental to the sale of 
the property and are not subject to the tax. When a vendor 
sells tangible personal property in returnable containers and a 
stated charge is made for the use of the containers throughout 
the period of retention by the customer, strch the charges are 
deemed to be rentals and are subject to sales or use tax. If a 
container is used by the owner of the container or another 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1308 



PROPOSED RULES 



person to enclose tangible personal propeny for delivery to a 
purchaser of the property and [s required to be returned to ks 
owner for reuse, u is exempt from tax in accordance with 
G.S. 105-164. 13(23)b. 

Authority G.S. 105-164.4; 105-164.13; 105-262. 

SECTION .4300 - REFUNDS TO 
INTERSTATE CARRIERS 

.4301 REFUNDS TO INTERSTATE CARRIERS 

(a) T^ny — p e r son engaged — in t r ans p o r ting per sons o r 
pr o p e rt y in in t e r stat e comme r ce for compensation who is 
subj e c t t o regulation by. atid to the ju r isdiction of. t he 
Int e rstate — Comme r c e Commission — or — the — Unit e d — Sta t es 
De p a rt men t of T r ans p o rt ation and who is re qui r ed by eithe r 
f e d er al agency to kee p r ecords acco r ding t o its gene r ally 
accep t ed accounting p r inci p als (GAAP) o r . in the c ase of a 
small c e nified ai r car r ie r , is r equi r ed by th e United S t ates 
D ep ar t men t of T r ans p o r tation to make rep o rt s of financial 
and o p e r ating s t ati s tics is an in t e r state car r ie r . — An inte r state 
car r ier may secu r e f r om the Sec r etary of Revenue a re fund o f 
t he No r th Carolina state and county sal e s or us e tax p aid by 
such per son on p u r chases or acquisitions of lub r ican t s, r e p ai r 
p a r ts and acccssones in this s t a t e fo r moto r v e hicl e s, r ail r oad 
ca r s, l o comotives and ai rp lanes o p e r ated by such pe r son. 
Persons no t mee t ing all of the r equiremen t s in t his Rule are 



n ot en t i t l e d t o a r efund und er t he 



/isions of t his Rule. 



en t i t i e a t o a r etunci una er t ne pr ovisions o r t nis 
The highway use t ax levied unde r Ar t icl e 5A of Cha p ter 105 
o f the Gen er al Statutes and t he fee levied on new mo t o r 
vehicle — tires — by — the — Sc r ap Tire — Dis p osal — Act — arc — not 
r efundable unde r the pr ovisions of this Rule. This Rule sets 
out the requirements for application by an interstate carrier. 
as defined in G.S. 105-164. 14(a). for the refund allowed by 
that statute. The refund authorized by that statute does not 
apply to taxes listed in Rule .1602(f) of this Subchapter. 

(b) The following are items of tangible personal property 
which may be included in purchases on the application for 
refund. Form E-581, filed by interstate carriers; 

(1) antennas; 

(2) antifreeze; 

(3) bedding for motor vehicle sleeping compartments; 

(4) charts for tachographs; 

(5) decals for motor vehicles; 

(6) emergency flares and reflectors; 

(7) fire extinguishers; 

(8) freon or nitrogen used in refrigerating and cooling 
motor vehicles; 

(9) furniture pads; 

(10) lifeboats and oxygen masks; 

(11) load jacks and chains; 

(12) mobile CB radios; 

(13) motor vehicle seat cushions; 

(14) paints for decals; 

(15) polyethylene liners (used to waterproof trailers); 

(16) pouches for registration cards and permits; 

(17) radios; 



(18) ramp equipment (aircraft steps used to embark or 
disembark aircraft); 

(19) ropes and chains to tie down cargo (adapted for use 
on motor vehicles; otherwise not allowed); 

(20) signs (metal signs attached to trucks); 

(21) tarpaulins; 

(22) tire chains; 

(23) tire and tubes; 

(24) welding rods for repair of motor vehicles; 

(25) windshield solvents; 

(26) zipped covers for grills. 

(c) The following are purchases of items of tangible 
personal property which shall not be included in the claim: 

(1) drivers' gloves; 

(2) drivers' uniforms; 

(3) food trays (airplanes); 

(4) fork lift tires and parts; 

(5) gauges for testing equipment; 

(6) hand trucks; 

(7) license and inspection fees; 

(8) pallets; 

(9) pillows (airplanes); 

(10) repair labor; 

(11) road service charges; 

(12) security seals; 

(13) sixty percent on recapped tires where forty percent 
of the combined price is taxed (17 NCAC 7B 
.1901); 

(14) tire volume discounts; 

(15) tools, shop supplies; 

(16) trip logs; 

(17) wax and washing supplies. 

(d) The lists in this Rule are not intended to be exclusive, 
but are for illustrative purposes only. If there is any question 
as to whether or not any item which does not appear therein 
should be included in total purchases on the application for 
refund, a ruling on such items may be obtained from the Sales 
and Use Tax Division. 

(e) The Secretary shall compute the North Carolina sales 
or use tax which would be due with respect to all lubricants, 
repair parts and accessories acquired during the refund period 
as though all such purchases were made in this state but only 
on such proportion of the total purchase prices thereof as the 
total number of miles of operation of such applicant's motor 
vehicles, railroad cars, locomotives and airplanes within this 
state bears to the total number of miles of operation of such 
applicant's motor vehicles, railroad cars, locomotives and 
airplanes within and without this state, and such amount of 
sales and use tax as the applicant has paid in this state during 
said refund period in excess of the amount so computed shall 
be refunded to the applicant. 

(f) The Secretary shall compute the county sales or use tax 
which would be due with respect to all lubricants, repair parts 
and accessories acquired during the refund period in the same 
manner as the state sales and use tax set out in Paragraph (e) 
of this Rule. 

(g) Application for refund forms shall be furnished by the 



i 



I 



1309 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



PROPOSED RULES 



Secretary of Revenue and shall be signed by a duly authorized 
person and notarized. Claims shall be filed quarterly within 
60 days from the close of each quarter ending in March, 
June, September and December of each year covering the 
purchases or acquisitions during the preceding quarter of 
lubricants, repair parts and accessories for motor vehicles, 
railroad cars, locomotives and airplanes. Any claim not filed 
during the period specified above shall not be allowed unless 
an extension of time has been granted, in which case the 
claim shall be filed during the extended period. 

(h) The application for refund shall show, in addition to all 
other required information, the total number of miles of 
operation of motor vehicles, railroad cars, locomotives and 
airplanes within and without this state, the total number of 
miles of operation of motor vehicles, railroad cars, 
locomotives and airplanes in this state, the total purchase 
price of lubricants, repair parts and accessories for motor 
vehicles, railroad cars, locomotives and airplanes and the 
total amount of North Carolina state and county sales and use 
tax paid on such purchases. Any sales or use tax paid to state 
or local taxing authorities shall be excluded from total 
purchases as shown on the application for refund. The 
amount of purchases of accessories attached to motor vehicles 
at the time of purchase on which the highway use tax was 
paid shall not be included in total purchases on the refund 
form. The application for refund form shall contain the 
procedure prescribed for computing the amount of the refund 
and the information necessary to complete such application. 
Records, upon which the application for refund is based, shall 
be maintained in such manner as to enable a representative of 
the Department of Revenue to accurately and conveniently 
verify the correctness of the applicant's statements. The 
application for refund shall be completed in triplicate and two 
copies returned to the North Carolina Department of 
Revenue, Office Examination Division, Raleigh, North 
Carolina, within the time prescribed herein. After a 
representative of the Department has verified the correctness 
of the application for refund, a voucher for the amount due, if 
any, will be issued. 

(i) Nothing in this Rule shall be so construed as to relieve 
any taxpayer of liability for remitting sales or use tax on 
taxable purchases of lubricants, repair parts and accessories 
for motor vehicles, railroad cars, locomotives and airplanes. 



Instructions on How to Demand a Public Hearing: The 

Department of Revenue is not subject to the notice and 
hearing requirements of the APA. Nevertheless, the 
Department publishes notice of proposed text in the Register 
and will hold a public hearing if there is sufficient interest in 
a public hearing. The Department does this because it 
believes that notice and hearing serve good public policy. A 
request for a public hearing must be in writing and be 
submitted to Ms. Jan Slusser, Work Station M930, Motor 
Fuel Tax Division, at P.O. Box 871, Raleigh, NC 27602, by 
January 30, 1998. Notice of any public hearing scheduled on 
this proposed rule change will be published in the Register. 

Reason for Proposed Action: 

17 NCAC 91 .0102 - Chapter 390 of the 1995 Session Laws 

revised the motor fuel taxes and eliminated the need for the 

special fuel reports referred to in Paragraph (b) of this Rule. 

The proposed change deletes the references to these obsolete 

reports. 

17 NCAC 91 .0304, 9J .0203 - The types of collateral 

acceptable in satisfaction of required bonds varies slightly for 

different purposes. The rules are changed to conform to the 

two other bond requirements. General obligation bonds are 

required to be of a minimum grade of BBB. 

17 NCAC 9K .0205 - The types of collateral acceptable in 

satisfaction of required bonds varies slightly for different 

purposes. The rule is changed to conform to the two other 

bond requirements. Revenue bonds are also acceptable. 

17 NCAC 9K .0511 - The cross-reference to a North 

Carolina Utilities Commission rule is an error. This 

proposed change corrects the error and sets out how the 

Department determines whether an entity is a municipality for 

motor fuel tax refund purposes. 

17 NCAC 9K .0513 - The nde explains the Department's 

interpretation of the motor fuel refund statutes with respect to 

entities that contract with other entities. 

Comment Procedures: Written comments may be submitted 
to Ms. Jan Slusser, Work Station M930, at North Carolina 
Department of Revenue, Motor Fuel Tax Division, P.O. Box 
871, Raleigh, NC 27602. Comments received will be taken 
into consideration in adopting the permanent rule. If you 
have questions, you may call Ms. Slusser at 919-733-4629. 



Authority G.S. 105-164.14; 105-262. 

Notice is hereby given that the Department of Revenue 
intends to amend ndes cited as 17 NCAC 91 .0102, 
.0304; 9J .0203; 9K .0205, .0511; and adopt 9K .0513. 
G.S. 150B- 1(d)(4) exempts the Department of Revenue from 
Part 2 Article 2A of Chapter 150B with respect to the notice 
and hearing requirements. 



Fiscal Note: These Rule do not affect the expenditures or 
revenues of state or local government funds. These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 9 - MOTOR FUELS TAX 
DIVISION 

SUBCHAPTER 91 - HIGHWAY FUEL 
USE TAX 



Proposed Effective Date: August 1, 1998 



SECTION .0100 - OPERATIONS 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1310 



PROPOSED RULES 



.0102 OPERATIONS OF VEHICLES 
EXCLUDED FROM REPORTS 

tJr> Every motor carrier shall must report the operations of 
all subject vehicles in its fleet when calculating fuel used in 
North Carolina pursuant to G.S. 105-449.44 for purposes of 
filing the report required by G.S. 105-44 9 .45. exce pt tha t t he 
moto r — carrie r — may — exclude — sttch 105-449.45. This 
requirement does not apply to vehicles that operate 
exclusively intrastate. 

(b) Vehicles us i ng special fuels tha t o p e r ate wholly wi t hin 
N ort h Carolina must be reponed on th e a ppr opriat e s p ecial 



fuels 



.e.: su pp lie r , r esell e r, bulk use r o r use r , if 



is report, i.c 

vehicles are excluded f r om the r e p o n filed under G.S. 105- 
44 9 .45. 



Authority 
449.45. 



G.S. 105-262: 105-449.37: 105-449.44; 105- 



of collat e ral: 

(+) Ce r tificates of deposi t o r cashier's checks, mad e 

p ayable to t he tax p ay e r; 

f2) Negotiable U.S. T r easury bonds, 

(3^ Negotiable U.S. Treasu r y notes; 

(4j Public School Facili t ies bonds; 

i^i Hous i ng Finance Agency bonds. 

(^1 Gene r al O b ligation Bonds of the S t ate of North 

Ca r olina o r its p oli t ical subdivisions; 

f?1 Rev e nu e Bonds of the S t a t e o r No r th Carolina or its 

p oli t ical subdivisions with a r a t ing of at least BAA 
o r BBB. 
Not e s and bonds t ende r ed as colla t eral must have a fair 
ma r ke t value at leas t equal to 115 p e r c e nt of t he c o lla t eral 
r equi r ed. 

Authority G.S. 105-262: 105-269.3; 119-16.2. 



SECTION .0300 - CREDITS AND REFUNDS 

.0304 TYPES OF ACCEPTABLE BONDS 

The Motor Fuels Tax Division will accept surety bonds on 
Form G-asT Gas 1212, furnished by this Division, executed by 
any surety company licensed to do business in this State. The 
Division will also accept bonds secured by any of the 
following types of collate r al : collateral if the proposed 
collateral has a fair market value that is at least 1 15% of the 
amount required: 

(1) Certificates of deposit or cashier's ch e cks, checks 
made payable to th e tax p aye r : taxpayer. 

(2) Negotiable U.S. Treasury bondsT bonds. 

(3) Negotiable U.S. Treasury notcsr notes. 

(4) Public School Facilities bond^ bonds. 

(5) Housing Finance Agency bonds; bonds. 

(6) General Obligation Bonds of the State of North 
Carolina or one of its political subdivisions; and 
subdivisions with a rating of at least BBB. 

(7) Revenue Bonds of the State of North Carolina or 
one of its political subdivisions with a rating of at 
least BAA o r BBB. 

No t es and bonds tende r ed as collate r al mus t hav e a fai r 
ma r ket valu e at l e ast equal t o 115 p e r c e n t of the colla t e r al 
r equi r ed. 

Authority G.S. 105-262; 105-449.40. 

SUBCHAPTER 9J - GASOLINE: SPECIAL 
FUELS AND KEROSENE INSPECTION 

SECTION .0200 - KEROSENE IMPORTER 

.0203 TYPES OF ACCEPTABLE BONDS 

The Motor Fuels Tax Division will accept surety bonds on 
Form GctST Gas 1212, fiimished by this Division, executed by 
any surety company licensed to do business in this State. The 
Division will also accept bonds secured by anx collateral that 
is acceptable under JJ NCAC 91 .0304. the following typ e s 



SUBCHAPTER 9K - GASOLINE, DIESEL 
AND BLENDS 

SECTION .0200 - LICENSING 

.0205 TYPES OF ACCEPTABLE BONDS 

itt) The Motor Fuels Tax Division will accept surety bonds 
on Form Gas 1212, furnished by the Division, executed by 
any surety company licensed to do business in this State. The 
Division will also accept bonds secured by any collateral that 
is acceptable under JJ NCAC 91 .0304. t he following t y pe s 
of colla t e r al: 

f4i Ce r tifica t es of deposi t o r cashie r 's checks, mad e 

p ayable t o t he tax p ay er ; 



f2) Nego t iable U.S. T r easu r y b o nds; 

fSi Nego t iable U.S. Treasury no t es; 

t4j Public School Facilities bonds; 

(5) Housing Finance Agency bonds ; 

<:&} Gene r al Obliga t ion Bonds of the S t a t e o f No rt h 

Ca r olina o r its p olitical subdivisions wi t h a ra t ing 
of a t least BAA o r BBB. 
(b) Notes and bonds t e nd ere d as colla t eral must hav e a fair 
ma r ke t value at least equal to 115 pe r c e n t of the collateral 
r equi r ed. 

Authority' G.S. 105-262; 105-449.72. 



SECTION .0500 - REFUNDS 

.05 II MUNICIPAL CORPORATION AND CITY 
TRANSIT SYSTEM 

In o r d er to d e fine municipal cor p o r ation, t he Mo t o r Fu e ls 
Ttnc — Division — wtH — follow — the — No r th — Carolina — Utilities 



Commis 



Rul e R2-6 9 , which 



ission Kul e Ki-d 'i . wnicn is inco rp o r at e d by r ef ere nce, 
and includes any futu r e amendments. — This Rule can be 
ob t ained f r ee of charge f r om the Chief Cle r k a t the Utilities 
Commission, (a) Municipal Corporation - A municipal 
corporation eligible for a refund under G.S. 105-449. 106(a) 
is an entity identified by statute as a municipal corporation or 



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PROPOSED RULES 



an entity that meets the definition of "municipality" in G.S. 
105-273. 

(b) City Transit System - - The Department determines the 
area that is included within a city transit system in accordance 
with Rule R2-69 of the North Carolina Utilities Commission. 
This rule is incorporated by reference and the incorporation 
includes any future changes to the rule. The rule can be 
obtained free of charge from the Chief Clerk at the Utilities 
Commission. (919) 733-7328. 

Authority G.S. 105-262: 105-449.106. 

.0513 ELIGIBILITY FOR REFUNDS 

A refund of tax allowed a particular person under Part 5 of 
Article 36C of the General Statutes or G^ 105-449.136 
applies to the person named in the statute and does not extend 
to a person who has a contract with the person named in the 
statute. A refund allowed under these provisions for fuel 
used for a particular purpose applies to anyone who uses the 
fuel for that purpose. 

Authority G.S. 105-262; 105, Article 36C, Part 5; 105- 
449.106. 



TITLE 18 - SECRETARY OF STATE 

Notice is hereby given in accordance with G.S. 150B-21.2 
that the Secretary of State intends to adopt rules cited as 
18 NCAC 6 .1211 - .1212; amend .1104. .1205 - .1206. 
.1304, .1401, .1410- .1412, .1509, .1702 - .1706. .1712 - 
.1714, .1801 - .1806, .1811; repeal .1506, .1809. Notice of 
Rule-making Proceedings was published in the Register on 
October 1, 1997. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 9:30 a.m. on 
February 16, 1998 at the Offices of the Department of the 
Secretary of State, 300 N. Salisbury Street. Securities 
Division Conference Room. Raleigh. NC. 

Reason for Proposed Action: Senate Bill 438 and Senate 
Bill 439 both necessitate the adoption of the proposed ndes. 
These t^vo bills became effective on October 1. 1997. after 
which the existing rules will be inconsistent with the new 
laws. Adoption of these ndes is necessary due to the 
enactment of the new legislation and the effective date of the 
new laws. 

Comment Procedures: Written and oral comments max be 
submitted at the hearing on February 16, 1998. All other 
comments outside the public hearing must be submitted prior 
to 5:00 p.m. on February 16. 1998 to David S. Massey, 
Deputy Securities Administrator at 300 N. Salisbury Street. 
Raleigh. NC 27603-5909. or b\ telephone at (919) 733- 
3924. 



Fiscal Note: These Rules do not affect the expenditures or 
revenues of state or local government funds . These Rules do 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 6 - SECURITIES DIVISION 

SECTION .1100 - GENERAL PROVISIONS 

.1104 DEFINITIONS 

(a) "Act" shall mean the North Carolina Securities Act, 
Chapter 78A of the North Carolina General Statutes, as same 
has been or may be from time to time amended. 

(b) "Commercial Paper," as referred to in G.S. 
78A- 16(10), shall mean any note, draft, bill of exchange or 
bankers acceptance which arises out of a current transaction 
or the proceeds of which have been or are to be used for 
current transactions, and which has a maturity at the time of 
issuance not exceeding nine months, exclusive of days of 
grace, or any renewal thereof, the maturity of which is 
likewise limited or any guarantee of such paper or of any 
such renewal. Commercial paper shall also exemplify the 
following characteristics: 

(1) prime quality negotiable paper of a type not 
ordinarily purchased by the general public; 

(2) issued to facilitate well recognized types of current 
operational business requirements; and 

(3) of a type eligible for discounting by Federal 
Reserve Banks. 

(c) "Direct Participation Program" shall mean a program 
which provides for flow-through tax consequences regardless 
of the structure of the legal entity or vehicle for distribution 
including, but not limited to, oil and gas programs, real estate 
programs, agricultural programs, cattle programs, 
condominium securities, and all other programs of a similar 
nature, regardless of the industry represented by the program, 
or any combination thereof. A program may be composed of 
one or more legal entities or programs but when used herein 
and in any rules or regulations adopted pursuant hereto the 
term shall mean each of the separate entities or programs 
making up the overall program and/or the overall program 
itself. Excluded from this definition are Subchapter S 
corporate offerings, real estate investment trusts, tax qualified 
pension and profit sharing plans pursuant to Sections 401 and 
403 (a) of the Internal Revenue Code and individual 
retirement plans under Section 408 of that Code, and any 
company registered pursuant to the Investment Company Act 
of 1940. 

(d) "SEC" shall mean the Securities and Exchange 
Commission. 

(e) "NASD" shall mean the National Association of 
Securities Dealers, Inc. 

(f) "NASAA" shall mean the North American Securities 
Administrators Association, Inc. 

(g) "CRD" shall mean the Central Registration 
Depository. 

(h) "Investment Contract" as used in G.S. 78A-2(11) 



12:14 



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1312 



PROPOSED RULES 



includes: 

(1) Any investment in a common enterprise with the 
expectation of profit to be derived through the 
essential managerial efforts of someone other than 
the investor. In this Subparagraph a "common 
enterprise" means an enterprise in which the 
fortunes of the investor are interwoven with and 
dependent upon the efforts and success of those 
seeking the investment or of a third party; and 

(2) Any investment by which an offeree furnishes 
initial value to an offeror, and a portion of this 
initial value is subjected to the risks of the 
enterprise, and the furnishing of this initial value is 
induced by the offeror's promises or 
representations which give rise to a reasonable 
understanding that a valuable benefit of some kind 
over and above the initial value will accrue to the 
offeree as a result of the operation of the enterprise, 
and the offeree does not receive the right to 
exercise practical and actual control over the 
managerial decisions of the enterprise. 

(i) "Recognized Securities Manual" shall mean a 
publication which contains the information required by G.S. 
78A-17(2)a. and which has been designated, by rule or by 
order, as a "recognized securities manual" by the 
administrator. 

(j) "Form D" is defined as shall mean the document 
adopted by the Securities and Exchange Commission, in 
effect on September L, 1996 and as may be amended by the 
SEC from time to time, entitled "FORM D: Notice of Sale of 
Securities pursuant to Regulation D. Section 4(6). and/or 
Uniform Limited Offering Exemption." including Part E and 
the Appendix. 

Authority G.S. 78A-49(a). 

SECTION .1200 - EXEMPTIONS 

.1205 LIMITED OFFERINGS PURSUANT 
TO G.S. 78A-17(9) 

(a) Any issuer relying upon the exemption provided by 
G.S. 78A-17(9) in connection with an offering of a security 
made in reliance upon Rule 505 o r Rul e 506 of Regulation D 
promulgated by the Securities and Exchange Commission 
under the Securities Act of 1933, as amended. 17 C.F.R. 
230.505 (1982) and 17 C.F.R. 230.506 (1 9 02) (and as 
subsequently amended) shall comply with the provisions of 
Rules .1206, .1207 and .1208 of this Section; provided that 
such compliance shall not be required if the security is 
offered and sold only to persons who will be actively 
engaged, on a regular basis, in the management of the issuer's 
business; and provided funher, that compliance with 
provisions of Paragraphs (a), (b), and (c) of Rule .1208 of 
this Section shall not be required if the security is offered to 
not more than five individuals who reside in this State. 

(b) Any issuer relying upon the exemption provided by 
G.S. 78A-17(9) in connection with an offering of a direct 



participation program security made solely in reliance upon 
an exemption from registration contained in Section 4(2) or 
Section 3(a)(l 1) of the Securities Act of 1933, as amended, or 
made solely in reliance upon Rule 504 of Regulation D 
promulgated by the Securities and Exchange Commission 
under the Securities Act of 1933, as amended, 17 C.F.R. 
230.504 (1982), (and as subsequently amended), shall comply 
with the following conditions and limitations: 

(1) No commission, discount, finder's fee or other 
similar remuneration or compensation shall be paid, 
directly or indirectly, to any person for soliciting 
any prospective purchaser of the security sold to a 
resident of this State unless such person is either 
registered pursuant to G.S. 78A-36 or exempt from 
registration thereunder or the issuer reasonably 
believes that such person is so registered or exempt 
therefrom. 

(2) In all sales of direct participation program 
securities, the provisions of Rule .1313 of this 
Chapter regarding registered offerings of direct 
participation program securities shall be applicable. 

(3) Any prospectus or disclosure document used in 
offering the securities in this state shall disclose 
conspicuously the legend(s) required by the 
provisions of Rule .1316 of this Chapter. 

(4) Not less than 10 business days prior to any sale of 
the securities to a resident of this State which shall 
include but not be limited to the receipt by the 
issuer, or any person acting on the issuer's behalf 
of a signed subscription agreement of, or the 
receipt of consideration from, a purchaser, the 
issuer shall file with the administrator, or cause to 
be so filed: 

(A) A statement signed by the issuer and 

acknowledged before a notary public or other 

similar officer: 

(i) identifying the issuer (including name, 
form of organization, address and 
telephone number); 

(ii) identifying the person(s) who will be 
selling the securities in this State (and 
in the case of such persons other than 
the issuer and its officers, partners and 
employees, describing their 

relationship with the issuer in 
connection with the transaction and 
the basis of their compliance with or 
exemption from the requirements of 
G.S. 78A-36) and describing any 
commissions, discounts, fees or other 
remuneration or compensation to be 
paid to such persons; 

(iii) containing a summary of the proposed 
offering including: 
(I) a description of the securities to 

be sold; 
(II) the name(s) of all general 



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January 15, 1998 



12:14 



PROPOSED RULES 



\ 



i 



partners of an issuer which is a 
partnership and, with respect to 
a corporate issuer or any 
corporate general partner(s) of 
any issuer which is a 
partnership, the date and place 
of incorporation and the names 
of the directors and executive 
officers of such corporation(s); 

(III) the anticipated aggregate dollar 
amount of the offering; 

(IV) the anticipated required 
minimum investment, if any, 
by each purchaser of the 
securities to be offered; 

(V) a brief description of the 
issuer's business and the 
anticipated use of the proceeds 
of the offering; and 
(VI) a list of the states in which the 
securities are proposed to be 
sold; 
(iv) containing an undertaking to furnish 
to the administrator, upon written 
request, evidence of compliance with 
Subparagraphs (1), (2), and (3) of this 
Paragraph (b); and 
(v) containing an undertaking to furnish 
to the administrator, upon written 
request, a copy of any written 
document or materials used or 
proposed to be used in connection 
with the offer and sale of the 
securities. 

(B) A consent to service of process naming the 
North Carolina Secretary of State as service 
agent using the Uniform Consent to Service 
of Process (Form U-2) signed by the issuer 
and acknowledged before a notary public or 
other similar officer; and accompanied by a 
properly executed Corporate Resolution 
(Form U-2A), if applicable; 

(C) A non-refundable filing fee in the amount of 
twenty-five dollars ($25.00), payable to the 
North Carolina Secretary of State. 

(5) Compliance with the provisions of Subparagraph 
(4) of this Rule shall not be required if the security 
is offered to not more than five individuals who 
reside in this State. 

(c) Neither the issuer nor any person acting on the issuer's 
behalf shall offer, offer to sell, offer for sale or sell the 
securities claimed to be exempt under G.S. 78A-17(9) by any 
means or any form of general solicitation or general 
advertising. 

(d) The administrator may, by order, waive any condition 
of or limitation upon the availability of the exemption 
provided by G.S. 78A-17(9). 



Authority G.S. 78A-I7(9); 78A-49(a). 

.1206 LIMITED OFFERING EXEMPTION 
PURSUANT TO G.S. 78A-I7(17) 
(a) Transactions made in reliance upon Rule 505 o r Rule 
566 of Regulation D promulgated by the Securities and 
Exchange Commission under the Securities Act of 1933, as 
amended, 17 C.F.R. 230.505 (1982) and 17 C.F.R. 230.506 
(1 9 82) (and as subsequently amended), including any offer or 
sale made exempt by application of Rule 508(a), as made 
effective in Release No. 33-6389 and as amended in Release 
Nos. 33-6437, 33-6663, 33-6758, and 33-6825, shall be 
exempt from the requirements of G.S. 78A-24, provided 
there is compliance with the conditions and limitations of this 
Rule . 1206 and Rules . 1207 and . 1208 of this Section. 

(1) No exemption under this Rule .1206 is available 
for the offer or sale of securities if the issuer or any 
other person or entity to which Rule .1206 applies 
is disqualified pursuant to Rule .1207 of this 
Section unless the administrator, upon application 
and a showing of good cause by the issuer, or such 
other person or entity, modifies or waives the 
disqualification. 

(2) No commission, discount, finder's fee or other 
similar remuneration or compensation shall be paid, 
directly or indirectly, to any person for soliciting 
any prospective purchaser of any security sold to a 
resident of this State in reliance upon the exemption 
provided by this Rule .1206 unless such person is 
either registered pursuant to G.S. 78A-36 or 
exempt from registration thereunder or the issuer 
reasonably believes that such person is so registered 
or exempt therefrom. 

(3) In all sales to those accredited investors defined in 
17 C.F.R. 230.501(a)(5) who reside in this State 
(except sales to such accredited investors made by 
or through a dealer registered under G.S. 78A-36) 
and in all sales to nonaccredited investors who 
reside in this State the issuer and any person acting 
on its behalf shall have reasonable grounds to 
believe and after making reasonable inquiry shall 
believe that one of the following conditions is 
satisfied: 

(A) The investment is suitable for the purchaser 
upon the basis of the facts, if any, disclosed 
by the purchaser as to his/her other security 
holdings and as to his/her financial situation 
and needs. For the purpose of this condition 
only, it may be presumed that if the 
investment does not exceed 10 percent of the 
investor's net worth, it is suitable. 

(B) The purchaser, either alone or with his/her 
purchaser representative(s), has such 
knowledge and experience in financial and 
business matters that he/she is or they are 
capable of evaluating the merits and risks of 



12:14 



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January 15, 1998 



1314 



PROPOSED RULES 



the prospective investments. 

(4) In all sales of direct panicipation programs 
securities pursuant to the exemption provided by 
this Rule .1206, the provisions of Rule .1313 of 
this Chapter regarding registered offerings of direct 
panicipation program securities shall be applicable 
in addition to all other requirements of this Rule 
.1206. 

(5) Any prospectus or disclosure document used in this 
state in connection with an offer and sale of 
securities made in reliance upon the exemption 
provided by this Rule .1206 shall disclose 
conspicuously the legend(s) required by the 
provisions of Rule .1316 of this Chapter. 

(6) Nothing in the exemption provided by this Rule 
.1206 is intended to or should be construed as in 
any way relieving the issuer or any person acting 
on behalf of the issuer from providing disclosure to 
prospective investors adequate to satisfy the 
antifraud provisions of the Act. 

(7) Transactions which are exempt under this Rule may 
not be combined with offers and sales exempt under 
any other rule or section of this Act; however, 
nothing in this limitation shall act as an election. 
Should for any reason, an offer and sale of 
securities made in reliance upon the exemption 
provided by this Rule .1206 fail to comply with all 
of the conditions hereof, the issuer may claim the 
availability of any other applicable exemption. 

(8) A failure to comply with a term, condition or 
requirement of Subparagraphs (a)(2) and (a)(3) of 
this Rule will not result in loss of the exemption 
from the requirements of G.S. 78A-24 for any offer 
or sale to a particular individual or entity if the 
person relying on the exemption shows: 

(A) the failure to comply did not pertain to a 
term, condition or requirement directly 
intended to protect that panicular individual 
or entity; and 

(B) the failure to comply was insignificant with 
respect to the offering as a whole; and 

(C) a good faith and reasonable attempt was 
made to comply with all applicable terms, 
conditions and requirements of 
Subparagraphs (a)(2) and (a)(3). 

Where an exemption is established only through 
reliance upon this Subparagraph (8) of this Rule, 
the failure to comply shall nonetheless be 
actionable by the administrator under G.S. 78A-47. 

(9) In any proceeding involving this Rule .1206, the 
burden of proving the exemption or an exception 
from a definition or condition is upon the person 
claiming it. 

(10) In view of the objective of this Rule .1206 and the 
purpose and policies underlying the Act, this 
exemption is not available to any issuer with 
respect to any transaction which, although in 



technical compliance with this Rule .1206, is part 
of a plan or scheme to evade registration or the 
conditions or limitations explicitly stated in this 
Rule .1206 or Rules .1207 and .1208 of this 
Section. 

(11) The administrator may, by order, waive any 
condition of or limitation upon the availability of 
the exemption provided by this Rule .1206. 

(12) The exemption provided by this Rule .1206 shall be 
known and may be cited as the "Nonh Carolina 
Limited Offering Exemption." 

(b) Pursuant to G.S. 78A-18, the administrator may by 
order deny or revoke the exemption provided by this Rule 
.1206 with respect to a specific security or security 
transaction. 

Authority G.S. 78A-17(17): 78A-49(a). 



.1211 NOTICE nLING PROCEDURES 
FOR RULE 506 OFFERINGS 

An issuer offering a security that is a "covered security" 
under Section 18(b)(4)(D) of the Securities Act of 1933 shall 
file a notice on SEC Form D. a consent to service of process 
on a form prescribed by the Administrator, and pay a fee of 
seventy-five dollars (575.00) no later than 15 days after the 
first sale in this State of such security covered under federal 
law. An issuer is not required to file any amendments to a 
Form D unless the amendment reflects a change in the 
offering m this State. 

Authority G.S. 78A-31(b); 78A-49(a). 

.1212 NOTICE HLING PROCEDURES FOR 
OFFERINGS OF IN\ESTMENT 
COMPANY SECURITIES 

An investment company offering securities covered 
Section 18(b)(2) of the Securities Act of 1933, as 



under 

amended, may satisfy the notice filing requirement of G.S. 
78A-31(a) by filing the fees required by that section, together 
with Form NF, Uniform Investment Company Notice Filing. 
This filing need not be made nor fees paid on any security 
issued by an investment company if such security is exempt 
pursuant to the provisions of G.S. 78A-16 or 78A-17. If 
permitted by the Securities Division. Form NF ma\' be filed 
electronicalh'. 

(b) By filing Form NF. an investment company thereby 
agrees that, upon receipt of a request from the Securities 
Division, the investment company uill promptly provide to 
the Division a copy of its current prospectus and statement of 
additional information, if any, as filed with the Securities and 
Exchange Commission. 

(c) By executing the Form NF. the investment company 
therebx' agrees, that for purposes of comphing with the laws 
of this State, such execution shall be deemed to be the consent 
of the investment company to have the Administrator 
irrevocably appointed as its agent in this State upon whom 



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January 15, 1998 



12:14 



PROPOSED RULES 



may be served any notice, process or pleading in any action 
or proceeding against it arising out of. or in connection with, 
the sale of securities covered by such Form NF or arising out 
of the violation of the securities laws of this State: and that 
any action or proceeding against the investment company may 
be commenced in any court of competent jurisdiction and 
proper venue within this State by service of pr ocess upon the 
Administrator with the same effect as if the investment 
company was organized or created under the laws of this State 
and had been served lawfully with process in this State. In 
the event any notice, process or pleading is served on the 
investment company through the Administrator, the 
Administrator shall promptly provide a copy of such notice, 
process, or pleading to the person indicated in Item 5 of Form 
NF. 

(d) Upon Filing Form NF and paying either the minimum 
or maximum fees required by G.S. 78A-31(a)(l). the 
securities of the investment company may be offered for sale 
and sold into, from, and within this State until the expiration 
of the notice filing period pursuant to G.S. 78A-31(a)(4). In 
order to offer or sell its securities after the expiration of its 
notice filing, the investment company must extend its notice 
filing as provided in Paragraph (fi of this Rule. In the event 
that the Securities Division requests that the investment 
company provide it with a copy of the investment company's 
prospectus or statement of additional information, such 
request shall not restrict the ability of the investment 
company to offer its securities for sale in this State provided 
that the Division has received the Form NF and fees as 
required by G.S. 78A-31(a). 

(e) Any investment company that elects to gay a fee less 
than the maximum fee as provided in G.S. 78A-31(a) shall 
file a sales report on Form NF. with the Division, within two 
months after the expiration of the notice filing period. 

ijQ A notice filing may be renewed by the investment 
company by filing a current Form NF and paying such fees as 
are required by G.S. 78A-3I(a) within two months after the 
expiration of the prior notice filing period. Each renewal of a 
notice filing shall expire on December 31. 

(g) Amendments to the information contained on a Form 
NF may be made by the filing of another Form NF. together 
with the fees required by G.S. 78A-31(a). 

Authority G.S. 78A-31(a); 78A-49(a). 

SECTION .1300 - REGISTRATION OF 
SECURITIES 

.1304 SECURITIES REGISTRATION 
AND ITLING FEES 

(a) All fees (registration and filing) are payable to the 
Office of the Secretary of State and shall be submitted with 
the application for original, renewal, or additional 
registration. The registration fee shall be retained by the 
administrator, except where the registration is not granted by 
the administrator or where the registration is withdrawn at the 
request of the applicant and with the consent of the 



administrator. The filing fee shall be retained by the 
administrator in all cases. 

(b) The aggregate offering amount of an original or 
amended registration may be increased prior to or after the 
effectiveness of the registration by providing the 
administrator the following: 

(1) An additional registration filing fee of fifty dollars 
($50.00) if such filing occurs after the effective 
date of the offering; 

(2) The appropriate registration fee calculated in the 
manner specified in G.S. 78A-28(b), provided the 
maximum registration fee has not been paid; and 

(3) An amendment to the Uniform Application to 
Register Securities (Form U-1). 

Additional registrations shall be effective when the 
administrator so orders. The r egist r ation statement for a 
mutual fund o r o p en- e nd management com p any may s p ecify 
an indefinite agg r egate offe r ing amoun t if such offeiing 
amou nt — is — similarly — regist ere d — with — the — Securiti e s — and 
Exchange Commission. 

(c) A registration statemen t r ela t ing to secu r ities issued or 
to be issued by — a mutual — ftrrtth — open-end management 
com p any, or unit investmen t t r us t , to be offe r ed for a p eriod 
in e xc e ss of one year, must be r enewed annually by p ayment 
of a r enewal fee of one hund r ed dollars ($100.00) and by 
filing the following: 

t¥) A copy of the current pros p ectus and any othe r 

offe r ing ma t e r ials; 

t^j One co p y of any am e ndments to the r egistra t ion 

sta t emen t not p r eviously filed; and 

f^ A statement of the amoun t of secu r ities sold in t his 

s t a t e to date and th e balance of unsold securities 

e ff e c t iv e ly — re gist ere d in this state, ex pr essed in 

dollars. 

The p ayment of the r enewal fee and the filing of th e lis te d 

docum e n t s and re ports in this Rule shall be made no eai - lier 

than Novembe r 15 t h and, t o assu r e timely r enewal, should be 

made no la ter than Decembe r — hStlr: Renewal mus t be 

p e r fected pr io r to Decembe r 31 of each year and failure t o 
timely r e n e w will resul t in the ex p ira t ion of t he r egistration 
statement. 

Authority G.S. 78A-28(b); 78A-28(j); 78A-49(a); 78A-31(a). 

SECTION .1400 - REGISTRATION OF 
DEALERS AND SALESMEN 

.1401 APPLICATION FOR REGISTRATION 
OF DEALERS 

(a) The application for registration as a dealer shall contain 
the following: 

(1) an executed Uniform Application for Registration 
as a Dealer (Form BD) and the appropriate 
schedules thereto or the appropriate successor form; 

(2) a fee in the amount of two hundred dollars 
($200.00); 

(3) evidence of current registration as a dealer with the 



12:14 



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January 15, 1998 



1316 



PROPOSED RULES 



Securities and Exchange Commission under the 
Securities Exchange Act of 1934; 

(4) evidence of net capi t al as defined by Rule .1410(e) 
of this Section g r eater than one hundred thousand 
dollars (5100,000) or evidence of compliance with 
Rule .1410 of this Section; 

(5) any other information the administrator may from 
time to time require. 

(b) The application for registration as a dealer shall be 
filed as follows: 

(1) NASD member dealers shall file applications for 
initial registration in the State of North Carolina 
with the NASAA/NASD Central Registration 
Depository, P.O. Box 37441, Washington, D.C. 
20013 and shall file a manually executed Form BD 
directly with the Securities Division. Applications 
for renewal of registration shall be filed only with 
the Central Registration Depository (see Rule .1406 
of this Section); 

(2) Non-NASD member dealers shall file all 
applications for registration in the State of North 
Carolina directly with the Securities Division. 

(c) The dealer shall file with the administrator, as soon as 
practicable but in no event later than thirty days, notice of 
any disciplinary action taken against the dealer by any 
exchange of which the dealer is a member; the Securities and 
Exchange Commission; the Commodity Futures Trading 
Commission; any national securities association registered 
with the Securities and Exchange Commission pursuant to 
Section 15 A of the Securities Exchange Act of 1934 or any 
state securities commission and of any civil suit filed against 
the dealer alleging violation of any federal or state securities 
laws. If the information contained in any document filed 
with the administrator is or becomes inaccurate or incomplete 
in any material respect, the dealer shall file a correcting 
amendment as soon as practicable but in no event later than 
thirty days. 

(d) Registration becomes effective at noon of the 30th day 
after a completed application is filed or such earlier time upon 
issuance of a license or written notice of effective 
registration, unless proceedings are instituted pursuant to 
G.S. 78A-39. The administrator may by order defer the 
effective date after the filing of any amendment but no later 
than noon of the 30th day after the filing of the amendment. 

(e) Every dealer shall notify the administrator of any 
change of address, the opening or closing of any office 
(including the office of any salesman operating apart from the 
dealer's premises) or any material change thereto, in writing 
as soon as practicable or by filing concurrently upon filing 
with NASD an appropriate amendment or schedule to Form 
BD or any successor form. 

Authoriry G.S. 78A-36(a): 78A-37(a); 78A-37(b); 78A-37(d); 
78A-38(c); 78A-49(a). 

.1410 MINIMUM FINANCIAL REQUIREMENTS 
FOR DEALERS 



(a) A dealer, upon ap p lication fo r regist r a t ion, must 
p rovide or a deale r who is curren t ly r egistered may aft e r 
Decembe r 31, 1 9 84 be r equi r ed to provide, evidence of n et 
ca p ital, as defined by Pa r ag r a p h (e> of this Rule, not less than 
the — a ppr o pr iately — pr esc r ibed — amounts — pr ovid e d — in — th« 
Pa r ag r a p h or in li e u th er eof a d e ale r may file a bond o i 
pr ovid e e vid e nce of a de p osit of ca?h or securities in the 
a ppr o pr iate amount pr ovided as follows: 

(4-) Deale r s o r ganized unde r the laws of this State or 

having thei r p rinci p l e office and subs t antial assets 
in this state shall maintain ne t capital of at least 
fifty thousand dolla r s (550,000), o r net ca p ital plus 
a sur et y bond or t r ust account t otaling at least fifty 
thousand dollars (550,000). 



(21 Bra^ 



eate r s t r ading in munici p al bonds only; dealers 
t r ading in Inv e stment Com p any securi t ies only; or 
deal e rs who do no t g e ne r ally car r y custom er 's 
accounts — as — defin e d 



-ar 



^^tric — 1 5 c3-l. (a)(2) 
pr omulgated — by — the — S e curiti e s — and — Exchange 
Commission unde r the Secu r ities Exchange Act of 
1 9 34 as am e nd e d, shall maintain net ca p ital of at 
leas t twenty-five thousand dollars (525,000), or net 
ca p ital p lus a su r ety bond o r t r ust account t otalling 
at l e ast twen t y-five thousand dollars (525.000). 

(3-1 Deale r s offe r ing and selling di r ec t p anici p ation 

p r og r ams only shall maintain ne t ca p i t al of a t least 
fifty thousand dollars (550,000), or net ca p i t al p lus 
a su ret y bond or tmst account totalling a t leas t fifty 
thousand dollars (550.000). 

t=H All othe r deale r s shall maintain net ca p i t al of 

seventy-five thousand dolla r s (575,000). or net 

ca p ital p lus a su re ty bond o r tr us t account to t alling 

a t least seventy-five thousand dollars (575,000). 

Each dealer registered or required to be registered 

under this Act shall comply with SEC Rules 15c3- 

i^ 15c3-2. and 15c3-3 (17 C.F.R. 240.15c3-l. 17 

C.F.R. 240.15c3-2. and 17 C.F.R. 240.15c3-3). as 

amended from time to time. 

(b) Exc ept as pr ovid e d by Parag r a p h (c) of this Rule, any 

Any dealer r egiste r ed on o r afte r January" 1. 1 9 84 who fails to 

maintain the minimum net capital o r ne t ca p ital p lus a su re ty 

bond o r t r us t accoun t requirement of Paragraph (a) of this 

Rule and any deale r r egis t e r ed b e fo re Januar\ ' 1, 1 9 84 wh o 

fails to maintain th e minimum n e t ca p ital o r net ca p ital p lus a 

su r ety bond or t r us t account r equi r ement of Parag r a p h (a) 

af ter D e c e mbe r 31, 1984 shall immediately suspend offers 

and sales of securities, notify the administrator within three 

business days of such fact, and shall not resume such 

operations until evidence has been submitted to and approved 

in writing by the administrator that the requirements of 

Paragraph (a) of this Rule have been met. 

tci — Should a d e ale r 's bond be terminated by the su r ety 
r esulting in th e d e al e r's failu r e to meet the r equi r ements of 
Pa r agra p h (a) of this Rule and the bond was not t e rminat e d 
due to faul t of the deale r , th e n the deale r shall be pr ovided a 
r easonabl e time pe r iod of up to six months, without th e 
necessity of sus p ending off e rs and sales of secu r i t ies, to 



1317 



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12:14 



PROPOSED RULES 



ob t ain anothe r bond in orde r to meet the r equirements o f 
Pai - agraph (a) of t his Rule pr ovided that the deal er notifies the 
administ r ato r in writing within five business days of the 
t e rmination of the bond and files such fur t hei iiifuiiiiation as 
the administra t or may r equire r egarding the financial status of 
t h e dealer until evidence of com p liance with Parag r a p h (a) o f 
this Rule is provided. 

(tJ^ — If the ne t ca p ital, o r ne t ca p i t al p lus a sure t y bond o r 
tr ust accoun t of a deale r , is less t han one thousand dollars 
($1,000) above t he requirements of Pai ' ag r a p h (a) of this Rule 
then such deale r shall notify the administrator wi t hin five 
busin e ss days and submit a co p y of th e deale r 's cu rr en t 
balance sheets. — A co p y of the dealer's curren t balance sheet 
shall be submi tt ed each mon t h the r eafter until t h e deale r 's net 
ca p ital, or net ca p ital p lus a su ret y bond or t i - ust accoun t , 
exceeds one thousand dolla r s ($1,000) over t he minimum 
requiremen t s of Parag r a p h (a) of this Rule. 

( e ) For the p ui p oses of this Rule, "N e t Ca p i t al" shall mean 
t h e e xc e ss of t otal asse t s ove r t otal liabilities as d e termined by 
gene r ally acce p ted accoun t ing pr inci p les, except t hat if any of 
such asse t s have been de pr ecia t ed, — th e n th e am o unt o f 
d ep r e ciation r ela t ive to any p articular asset may be added t o 
t he depreciat e d cos t of such ass e ts t o com p u te t o t al assets; 
pr ovided howeve r , tha t th e amoun t resulting after adding such 
de pr eciation docs n ot exceed the fai r marke t value o f th e 
asse t . — In the case of an individual, th e asse t s on his balance 
shee t may be car r i e d at es t imated fai r marke t value, with 
p rovisions fo r es t imated income t axes on unr e aliz e d gain. 
Fo r the pu rp ose of calcula t ing t he a ppropr iate amoun t of 
su r e t y bond which may be requir e d p ursuan t to this Rul e , n e t 
ca p ital may be pr esumed t o be ze ro ($0.00) in si t ua t ions in 
which a deale r 's liabili t ies exceed t he deale r 's asse t s. 

(-f) — The su r e t y bond shall b e fil e d on th e Nor t h Car o lina 
Secu r ities Administ r a tor 's Deale r Bond (NCDD Form) or on 
a foiiii acce pt able to th e adminis tr at or , evid e nc e of a d e p o si t 
o f cash o r secu r ities shall be filed on the Ce rt ificati o n o f 
D ep osit of Cash o r S e cu r ities (CDC5 Form) or on a form 
acce p table to the administ r ato r . 

Authority G.S. 78A-37(d); 78A-49(a). 

.141 1 RECORD KEEPING REQUIREMENTS 
FOR DEALERS 

tct) — Ev er y r egiste r ed deale r shall keep the books and 
r eco r ds set out in this Parag r a p h, unless othe r wise d e signated 
by the adminis tr a t o r : 

th blotte r s — (or — othe r — re cords — of — o r iginal — crrtry) 

con t aining an itemized daily re cord of all pu r chases 
and sales of s e cu r i t ies, all r ecei pt s and deliv er i e s of 
secu r i t ies — (including — ce i lificate — numbe r s). — aH 
recei p ts and disbu r sem e nts of cash and all o t he r 
debits and c r edits. — The r eco r d shall show the 
accoun t fo r which each transaction was affected, 
the name and amoun t of secu r ities, the unit and 
aggr e gate p u r chase o r sale pr ice (if any), the t r ade 
date, and the name or othe r designation of t h e 
p e r son f r om whom p u r chased o r r eceived o r to 



wh o m sold or d e livered; 

(2) ledge r s (o r other r ecords) reflec t ing all assets and 

liabilities, — income, — and — ex p ense — and — ca p ital 
accounts ; 

i^ ledge r accoun t s itemizing se p arately as to each cash 

and margin account of eve r y custom e r and of the 
deale r and p ar t ne r s t hereof, all purchases, sal e s, 
r ecei p ts — and — deliv er i e s — of — secu r ities — and 
commodities fo r the accoun t and all other debits 
and c r edi t s to the account; 

f4) ledgers (or othe r records) r eflecting the following : 

(7*c) secu r ities in t r ansfe r ; 

fBj dividends and int er es t received; 

t€) s e cu r ities bo rr owed and secu r ities loaned; 

{&) monies — bo rr owed — and — monies — loan e d 

( t ogethe r with a r ecord of t he collate r al 
the r eof — and — any — subs t itutions — in — the 
collate r al); and 

fEr) s e curiti es — faifed — to — r eceive and failed to 

delive r; 

t5j a s e curities r ecord or ledge r r eflec t ing s ep a r at e ly 

fo r each secu r i t y as of the cl e aranc e dates all "long" 
or — "sho r t" — p ositions — (including — secu r ities — in 
safekee p ing) cai - ried by the dealer fo r i t s account or 
f or the accoun t of its customers or partne r s and 
showing the location of all secu r ities long and 
offse tt ing p osition to all s e cu r i t ies shon and in all 
cases the name or designation of t he accoun t in 
which each p osition is car r i e d; 

(6) a m e morandum of each b r oke r age o r de r , and of any 

o the r inst r uc t ion, given o r r eceiv e d fo r t he p u r chase 
or — sak — of — secu r ities — whether — execu t ed — or 

unexecu t ed. The m e mo r andum shall show th e 

terms and condi t ions of the o r de r or inst r uc t ions 
and any m o difica t ion o r cancella t ion th ere of, th e 
accoun t f or which ente re d, the time of ent r y, the 
price a t which e x e cuted and. t o the exten t f e asibl e . 

the time of execution o r cancellation. O r de r s 

en t e r ed p u r suant to the exe r cise of disc re tionaiy 
p ow er by the dealer, o r any e m p loyee the r eof, shall 
be so designated. — The term "institiction" shall be 
d ee m e d to include inst r uctions between p artn e rs 
and em p loyees of a deale r . — Th e t e iiii "time of 
en tr y" shall be deemed to mean the t im e wh e n such 
deale r — t r ansmits — the — o r d e r — o r inst r uc t ion — for 
e x e cution, o r . if i t is not so tr ansmitt e d, the time 
when it is re c ei v e d ; 

t^^ a memo r andum of each p u r chase and sal e of 

s e cu r i t ies fo r the account of the dealer showing the 

pr ice — and to the extent feasibl e , — the time of 

execution; 

co p ies of confu Illations of all p u r chases and sal e s 

and co p ies of notices of all othe r debits and c r edi t s 

fo r secu r ities, cash and othe r items fo r th e account 

of custome r s and partne r s of the dealer; 

a r eco r d in r es p ect of each cash and margin accoun t 

with the deale r containing the nam e and add r ess of 



w- 



m- 



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NORTH CAROLINA REGISTER 



January 15, 1998 



1318 



PROPOSED RULES 



i^^ 



the beneficial owne r of the account; p rovided tha t 
in the case of a joint a c coun t or an account of a 
co rp o r ation, — the — r e co r ds — arc — r equir e d — orrty — m 
r espec t o f the p erson o r p e r sons autho r ized to 
transac t busin e ss for the accoun t : 
a r eco r d of all pu t s, c alls, spreads, st r addles and 
other o pt ions in which the deale r ha^ ajiy di r ect o r 
indirec t in t e r est o r which the dealer has g r anted o r 
guaran t eed, con t aining, a t l e as t , an identifica t ion of 
the secu r ity and the number of units involved. This 
Sec t ion shall no t be deemed t o r equire a member of 
a national s ec u r i t i e s exchange to make o r ke ep 
r e co r ds of t ransac t ions clea re d fo r th e m e mbe r by 
another member as are customarily made and ke pt 
by t he clearing membe r . 
fb^ — Even ' regis t e r ed dealer shall pre se r ve fo r a p e r iod of 
not less t han th r ee \ ' ears. the fi r s t t wo years in a r eadily 
acc e ssible location : 

t4i all check books, bank statements, cancelled checks 

and cash reconciliation: 

t?l all bills re c e ivable o r p ayable (o r co p ies the r eof), 

paid o r un p aid rela t ing to the busin e ss of th e 
d e ale r ; 

i^ originals of all communica t ions r eceived and co p ies 

of all communica t ions sen t by the deale r I including 
in t e r office — memoranda — and — communications) 
rela t ing to t he busin e ss of t h e d e al er : 
-aH — trral — balances, — com p u t ation — crp 



f4t- 



agg r ega t c 

indebtedness and net ca p i t al (and wo r king p a per s in 
conn e ction th ere with), financial s t a te m e n t s, b r anch 
office re concilia t ions and inte r nal audi t wo r king 
papers, r ela t ing to the busin e ss of the deale r : 

t5l aH — guarantees — of accoun t s — and — aH — powws — of 

a ttor ney and othe r evidence of the g r an t ing of any 
disc r etionary auth or i t y given in r es p ec t of any 
accoun t , and co p ies of r esolution empowering an 
agen t t o act on behalf of a co rp o r ation: 

t^l all wri t ten ag r eements (o r co p ies the re of) e nte r ed 

in t o by a d e al er r elating to business of t he deale r , 
including agr ee m e nts with r es p ect to any account. 
To r a p e r iod of not less than th r ee years afte r the 
c l o sing of any cus t ome r 's accoun t , any account 
ca r ds o r r eco r ds which r elate to the terms and 
conditions — wrth — r es p ec t — to — the — opening — and 
main te nanc e of the account shall be pre s er v e d by 
eve r y r egiste r ed d e al e r. — Cv er . ' r egiste re d d e al er 
shall pr ese r ve du r ing th e life of the ente rpr is e and 
erf — any — succ e sso r — enter p rise — aH — p artn er shi p 
agreements, c er tifica te s or a r ticles o r . in th e cas e of 
a — co rpor a t ion. — aH — a rt icles — of — inco rp o r a t ion o r 
charte r , minu t e books and stock ce rt ificate books. 
Af ter — a — re co r d — or — othe r documen t s — has — been 
pr e5er% ' ed fo r two years, a p ho t og r a p h ther e of on 
film may be subs t itu t ed the r efo r e fo r the balance of 
t he r equi r ed t ime. 
(a) Unless otherwise provided b>- order of the Securities 
and Exchange Commission, each dealer registered or required 



to be registered under this Act shall make, maintain and 
preserve books and records in compliance with U.S. 
Securities and Exchange Commission Rules 17a-37 and 17a-4 
(17 C.F.R. 240.17a-37 and 17 C.F.R. 240.17a-4) and with 
section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 
78o) and the rules promulgated thereunde r and 15c2-ll fH? 
C.r.R. — 240.17a-3.17 — C.F.R. — 240.17a-4, — H" — C.F.R. 
240.15c2-6. 
time to time. 



and 17 C.F.R. 240.15c2-ll) . as amended from 



fcilb) To the extent required by the Securities Exchange 
Act of 1934 or the rules adopted thereunder, every Every 
re gistered dealer registered or required to be registered under 
this Act shall maintain within this State, in a readily 
accessible location, all records required by this Rule. A 
written request for the waiver of the provisions of this Section 
may be made to the administrator to permit any registered 
dealer to maintain any of the records required by this Section, 
in some place other than the State of North Carolina. In 
determining whether or not the provisions of this Section 
should be waived the administrator may consider, among 
other things, whether the main office of the dealer is in a 
place outside the State of North Carolina or whether the 
dealer clears all or some of its transactions and uses all or 
some of the bookkeeping facilities of some other dealer whose 
main office is outside the State of North Carolina. 

Authority G.S. 78A-38(a); 78A-38(b); 78A-38(d); 78A-49(a). 

.1412 FIN ANCI AL STATEMENTS 

The administ r ato r may r equi r e any deal er , ei t her regis te red 
o r making a pp lication, t o file any and all finan c ial statemen t s 
which such deale r files with t he Secu r ities and Exchang e 
Commission or any na t ional securities e xchange or na t ional 
secu r ities associa t ion of which i t is a memb er . — Each broker- 
deale r is r equi r ed to fu r nish the adminis t rator wi t h a copy of 
its audi t ed financial sta t emen t s 60 days afte r i t s fiscal year 
e nds. Each dealer registered or required to be registered 
under this Act shall comply with SEC Rule 17a- 11 (17 
C.F.R. 240.17a-l 1), as amended from time to time, and shall 
file with the Administrator upon request copies of notices and 
reports required under SEC Rules 17a-5. 17a-10. and 17a-l 1 
(17 C.F.R. 240.17a-5. 17 C.F.R. 240.17a-10. and 17 C.F.R. 
240. 17a- 11). as amended from time to time. 

Authority G.S. 78A-38(b); 78A-49(c). 

SECTION .1500 - MISCELLANEOUS 
PROVISION 

.1506 PL'BLIC INFORMATION (Repealed) 

Authority G.S. 78A-46(a); 78A-49(a); 78A-49(g); 78A-50(c); 
132-1.1. 

.1509 FORMS 

The following forms are available upon request from the 
Securities Division for use in complying with the provisions 



1319 



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January 15, 1998 



12:14 



PROPOSED RULES 



of Chapter 78A (the North Carolina Securities Act) of the 
North Carolina General Statutes and the rules promulgated 
thereunder: 

(1) Uniform Application to Register Securities (Form 
U-1); 

(2) Uniform Application for Registration As a Dealer 
(Form BD); 

(3) Supplement to Schedule F of Form BD; 

(4) Uniform Application for Securities and 
Commodities Industry Representative and/or Agent 
(Form U-4); 

(5) Uniform Termination Notice for Securities Industry 
Registration (Form U-5); 

(6) Uniform Consent to Service of Process (Form 
U-2); 

(7) Uniform Form of Corporate Resolution (Form 
U-2A); 

(8) North Carolina Securities Administrator's Dealer 
Bond (Form NCDB); 

(9) Certification of Deposit of Cash or Securities 
(Form CDCS); 

(10) Small Corporate Offerings Registration Form 
(Foiiii U-7); and (Form U-7): and 

(11) Form NF. Uniform Investment Company Notice 
Filing. 

Authority G.S. 78A-49(a)(b). 

SECTION .1700 - REGISTRATION OF 

INVESTMENT ADVISERS AND INVESTMENT 

ADVISER REPRESENTATIVES 

.1702 APPLICATION FOR INVESTMENT 
ADVISER REGISTRATION/NOTICE 
FILING FOR INVESTMENT ADVISER 
COVERED UNDER FEDERAL LAW 

(a) The application for initial registration as an investment 
adviser pursuant to Section 78C-17(a) of the Act shall be filed 
upon Form ADV (Uniform Application for Investment 
Adviser Registration) (17 C.F.R. 279.1) with the 
administrator. The initial application shall include the 
consent to service of process required by Section 78C-46(b) 
of the Act, and shall include the following: 

(1) A statement or certificate showing compliance by 
the investment adviser with the examination 
requirements of Rule .1709; 

(2) Such financial statements as set forth in Rule 
.1708, including at the time of application, a copy 
of the balance sheet for the last fiscal year, and if 
such balance sheet is as of a date more than 45 days 
from the date of filing of the application, an 
unaudited balance sheet prepared as set forth in 
Rule .1708 as of a date within 45 days of the date 
of filing; 

(3) Evidence of compliance with the minimum 
financial requirements of Rule .1704; 

(4) A copy of the surety bond required by Section 



78C-17(e), if applicable; 

(5) The fee required by Section 78C-17(b) of the Act; 
and 

(6) Any other information the administrator may from 
time to time require. 

(b) The application for renewal of registration as an 
investment adviser shall be filed on Form ADV S (Annual 
Re p o r t — for Investmen t — Advise r s — Regist e r e d — Unde r — the 
Investm e nt Advise r s Ac t of 1940) (17 C.F.R. 279.3) an 
amended Form ADV and shall contain the following: 

(1) A copy of the surety bond required by Rule . 1705, 
if applicable; and 

(2) The fee required by Section 78C-17(b) of the Act. 

(c) The investment adviser shall file with the 
administrator, as soon as practicable but in no event later than 
30 days, notice of any civil, criminal or administrative 
charges filed against the investment adviser which relate 
directly or indirectly to its activities in the securities or 
financial services business. This notice shall include 
notification of any investigation by any securities, 
commodities, or other financial services regulatory agency 
and any disciplinary, injunctive, restraining, or limiting 
action taken by such agencies, by any court of competent 
jurisdiction, or by any state administrator with respect to the 
investment adviser's activities in the securities or financial 
services business. Any amendment required by Section 
78C- 18(d) of the Act for an investment adviser shall be made 
on Form ADV in the manner prescribed by that form. Any 
amendment to Form ADV shall be filed with the 
administrator within the time period specified in the 
instructions to that form relating to filings made with the 
Securities and Exchange Commission. 

(d) Registration becomes effective at noon of the 30th day 
after a completed application is filed or such earlier time upon 
issuance of a license or written notice of effective 
registration, unless proceedings are instituted pursuant to 
G.S. 78C-19. The administrator may by order defer the 
effective date after the filing of any amendment but no later 
than noon of the 30th day after the filing of the amendment. 

(e) Every investment adviser shall notify the administrator 
of any change of address, the opening or closing of any office 
(including the office of any investment adviser representative 
operating apart from the investment adviser's premises) or 
any material change thereto, in writing as soon as practicable. 

(f) The registration of an investment adviser shall expire 
on December 31 of each year unless timely renewed. The 
application for renewal of registration should be filed at least 
15 days before the expiration date. 

(g) The notice filing for an investment adviser covered 
under federal law pursuant to G.S. 78C-17(al) shall be filed 
with the Administrator or with a central registration 
depositorv designated by the Administrator on an by filing a 
copy of the executed Form ADV (Uniform Form for 
Investment Adviser Registration (17 C.F.R. 279.1)) most 
recently filed by the investment adviser with the Securities 
Exchange Commission, and shall includ e: include the fee 
required under G.S. 78C-17(bl). 



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PROPOSED RULES 



H") a transmi tt al le t te r indicating that ihc Fo r m ADV is 

being submitted by an investment advise r cove r ed 
unde r federal law p u r suan t t o G.S. 7aC-17(al > ; and 

(2) the fee r equir e d unde r G.S. 70C-17(bl). 

(h) The renewal of the notice filing for a f e d e ral cove r ed 
an investment adviser covered under federal law pursuant to 
G.S. 78C-17(al) shall be t iled upon Schedule I of made by 
filing with the Administrator a copy of the executed Form 
ADV most recently filed by the investment adviser with the 
Securities E.\change Commission, o r anothei fouri d e signated 
by the Administrator, and shall include : include the fee 
required under G.S. 78C-17(bl ). 

fi") a t r ansmi tt al le tt e r indicating tha t t he Fuiiu ADV is 

being Filed by an investment adviser covered under 
f e d e ral law p ursuan t t o G.S. 78C-17(al); and 
t*) the fee r equired unde r G.S. 78C-17(bl). 

Authorin G.S. 78C-16(b): 78C-16(d): 78C-17(a); 78C- 
17(al}: 78C-17(b); 78C-17(bl); 78C-17(e); 78C-18(d); 
78C-19(a): 78C-30(a); 78C-30(b); 78C-30(c): 78C-30(d); 
78C-46(b). 

.1703 APPLICATION/EWESTMENT ADVISER 
REPRESENTATIVE REGISTRATION 

(a) The application for initial registration as an investment 
adviser representative pursuant to Section 78C-17(a) of the 
Act shall be filed upon Form U-4 (Uniform Application for 
Securities Industry Registration or Transfer) with the 
administrator and contain the additional information required 
by this Rule. The initial application shall include the consent 
to service of process required by Section 78C-46(b) of the 
Act. The application for initial registration shall also provide 
the following: 

(1) A statement or certificate showing compliance by 
the investment adviser representative with the 
examination requirements of Rule .1709; and 

(2) The fee required by Section 78C-17(b) of the Act. 

(b) The application for renewal of registration as an 
investment adviser representative shall, unless waived by the 
administrator, be filed with the administrator. No renewal of 
registration as an investment adviser representative shall be 
effected until the fee required by Section 78C- 17(b) of the 
Act is remitted to the administrator. 

(c) The investment adviser rep r e s e ntative or representative. 
the investment advise r adviser, or the investment adviser 
covered under federal law for which the investment adviser 
representative is registered shall file with the administrator, 
as soon as practicable but in no event later than 30 days, 
notice of any civil, criminal, or administrative charges filed 
against the investment adviser representative which relate 
directly or indirectly to his activities in the securities or 
financial ser\'ices business. This notice shall include 
notification of any investigation by any securities. 
commodities, or other financial services regulatory agency 
and any disciplinary, injunctive, restraining, or limiting 
action taken by such agencies, by any court of competent 
jurisdiction, or by any state administrator with respect to the 



investment adviser representative's activities in the securities 
or financial services business. Any amendment required by 
Section 78C- 18(d) of the Act for an investment adviser 
representative shall be made on Form U-4 in the maimer 
prescribed by that form. Such amended Form U-4 shall be 
filed with the administrator not later than 30 days following 
the event necessitating such amendment. 

(d) Registration becomes effective at noon of the 30th day 
after a completed application is filed or such earlier time upon 
approval of the application by the administrator, unless 
proceedings are instituted pursuant to G.S. 78C-19. The 
administrator may by order defer the effective date after the 
filing of any amendment but no later than noon of the 30th 
day after the filing of the amendment. 

(e) The registration of any investment adviser 
representative shall expire on December 31 of each year 
unless renewed in a timely fashion. The application for 
renewal of registration should be filed at least 15 days before 
the expiration date. The application for renewal of 
registration of investment adviser representatives shall be 
submitted by the investment adviser or investment adviser 
covered under federal law, who shall file with the Securities 
Division a listing of all investment adviser representatives to 
be renewed along with their current addresses and social 
security numbers. The investment advisers adviser 
representative renewal list shall be submitted in alphabetical 
order as follows: last name, first name, middle name or 
maiden name; current address; social security number. A fee 
of forty-five dollars (S45.00) for each investment adviser 
representative made payable to the North Carolina Secretary 
of State shall be submitted along with the investment adviser 
representative renewal list. 

Authority G.S. 78C-16lb); 78C-17(a): 78C-17(b); 78C-18(d); 
78C-19(aj: 78C-30(a); 78C-30(b); 78C-46(b). 

.1704 MINIMUM FINANCIAL REQUIREMENTS 
FOR INVESTMENT ADVISERS 

(a) Unless an investment adviser posts a bond pursuant to 
Rule .1705, an investment adviser registered or required to be 
registered under the Act who has custody of client funds or 
securities shall maintain at all times a minimum net worth of 
thirty-five thousand dollars (S35,000.(X)), and every 
investment adviser registered or required to be registered 
under the Act who has discretionary authority over client 
funds or securities but does not have custody of client funds 
or securities shall maintain at all times a minimum net worth 
often thousand dollars (SIO.OOO.OO). 

(b) Unless otherwise exempted, as a condition of the right 
to continue to transact business in this state, every investment 
adviser registered or required to be registered under the Act 
shall by the close of business on the next business day notify 
the administrator if such investment adviser's total net worth 
is less than the minimum required. After transmitting such 
notice, each investment adviser shall file by the close of 
business on the next business day a written report with the 
administrator of its financial condition, including the 



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PROPOSED RULES 



following: 

(1) A trial balance of all ledger accounts; 

(2) A statement of all client funds or securities which 
are not segregated; 

(3) A computation of the aggregate amount of client 
ledger debit balances; and 

(4) A statement as to the number of client accounts. 

(c) For purposes of this Rule, the term "net worth" shall 
mean an excess of assets over liabilities, as determined by 
generally accepted accounting principles, but shall not include 
as assets: prepaid expenses (except as to items properly 
classified as current assets under generally accepted 
accounting principles), deferred charges, subordinated loans, 
goodwill, franchise rights, organizational expenses, patents, 
copyrights, marketing rights, unamortized debt discount and 
expense, all other assets of intangible nature; home, home 
furnishings, automobile(s), and any other personal items not 
readily marketable in the case of an individual; advances or 
loans to stockholders and officers in the case of a corporation; 
and advances or loans to partners in the case of a partnership. 

(d) The administrator may require that a current appraisal 
be submitted in order to establish the worth of any asset. 

(e) Every investment adviser that has its principal place of 
business in a state other than this state shall maintain orrfy 
such minimum capital as required by the state in which the 
investment adviser maintains its principal place of business, 
provided the investment adviser is licensed in such state and 
is in compliance with such state's minimum capital 
requirements, requirements, if any. 

Authority G.S. 78C-17(d); 78C-18(c); 78C-18(d); 78C-30(a). 

.1705 BONDING REQUIREMENTS FOR 

CERTAIN INVESTMENT ADVISERS 

(a) Every investment adviser having custody of or 
discretionary authority over client funds or securities shall be 
bonded in an amount of not less than thirty-five thousand 
dollars ($35,000.00) by a bonding company qualified to do 
business in this state or in lieu thereof may provide evidence 
of a deposit of cash or securities in such amount. The 
requirements of this Rule shall not apply to those applicants 
or registrants who comply with the requirements of Rule 
.1704. 

(b) Should an investment adviser's bond be terminated by 
the surety resulting in the investment adviser's failure to meet 
the requirements of Paragraph (a) of this Rule and the bond 
was not terminated due to fault of the investment adviser, 
then the investment adviser shall be provided a reasonable 
time period up to six months, without the necessity of ceasing 
to do business as an investment adviser, to obtain another 
bond in order to meet the requirements of Paragraph (a) of 
this Rule provided that the investment adviser notifies the 
administrator in writing within two business days of the 
termination of the bond and files such further information as 
the administrator may require regarding the financial status of 
the investment adviser until evidence of compliance with 
Paragraph (a) of this Rule is provided. 



(c) The surety bond shall be filed with the administrator on 
Form NCIAB (North Carolina Securities Division Investment 
Adviser's Bond) or on a form acceptable to the administrator. 
Evidence of a deposit of cash or securities shall be filed with 
the administrator on Form CDCS-IA (Certification of Deposit 
of Cash or Securities -- Investment Advisers) or on a form 
acceptable to the administrator. 

(d) An investment adviser that has its principal place of 
business rn a state other than this state shall be exempt from 
the requirements of Paragraph (a) of tlm Rule, provided that 
the investment adviser is registered as an investment adviser 
in the state where it has its principal place of business and is 
in compliance with such state's requirements relating to 
b o nding, bonding, if any. 

Authority G.S. 78C-17(d); 78C-18(b); 78C-18(c); 78C-30(a). 

.1706 RECORD-KEEPING REQUIREMENTS 
FOR INVESTMENT ADVISERS 

(a) Except as otherwise provided in Paragraph ij} of this 
Rule, every Eve r y investment adviser registered or required 
to be registered under the Act shall make and keep true, 
accurate and current the following books, ledgers and 
records: 

(1) A journal or journals, including cash receipts and 
disbursements records, and any other records of 
original entry forming the basis of entries in any 
ledger; 

(2) General and auxiliary ledgers (or other comparable 
records) reflecting asset, liability, reserve, capital, 
income and expense accounts; 

(3) A memorandum of each order given by the 
investment adviser for the purchase or sale of any 
security, of any instruction received by the 
investment adviser from the client concerning the 
purchase, sale, receipt or delivery of a particular 
security, and of any modification or cancellation of 
any such order or instruction. Such memoranda 
shall show the terms and conditions of the order, 
instruction, modification or cancellation; shall 
identify the person connected with the investment 
adviser who recommended the transaction to the 
client and the person who placed such order; and 
shall show the account for which entered, the date 
of entry, and the bank or dealer by or through 
whom executed where appropriate. Orders entered 
pursuant to the exercise of discretionary power 
shall be so designated; 

(4) All check books, bank statements, canceled checks 
and cash reconciliations of the investment adviser; 

(5) All bills or statements (or copies thereoO, paid or 
unpaid, relating to the business of the investment 
adviser as such; 

(6) All trial balances, financial statements, and internal 
audit working papers relating to the business of 
such investment adviser; 

(7) Originals of all written communications received 



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1322 



PROPOSED RULES 



and copies of all written communications sent by 
such investment adviser relating to: 

(A) Any recommendation made or proposed to 
be made and any advice given or proposed to 
be given, 

(B) Any receipt, disbursement or delivery of 
funds or securities, or 

(C) The placing or execution of any order to 
purchase or sell any security; provided, 
however, 

(i) that the investment adviser shall not be 
required to keep any unsolicited 
market letters and other similar 
communications of general public 
distribution not prepared by or for the 
investment adviser, and 
(ii) that if the investment adviser sends 
any notice, circular or other 
advertisement offering any report, 
analysis, publication or other 
investment advisory service to more 
than ten persons, the investment 
adviser shall not be required to keep a 
record of the names and addresses of 
the persons to whom it was sent; 
except that if such notice, circular or 
advertisement is distributed to persons 
named on any list, the investment 
adviser shall retain with the copy of 
such notice, circular or advertisement 
a memorandum describing the list and 
the source thereof; 

(8) A list or other record of all accounts in which the 
investment adviser is vested with any discretionary 
power with respect to the funds, securities or 
transactions of any client; 

(9) All powers of attorney and other evidences of the 
granting of any discretionary authority by any 
client to the investment adviser, or copies thereof; 

(10) All written agreements (or copies thereof) entered 
into by the investment adviser with any client or 
otherwise relating to the business of such 
investment adviser as such; 

(11) A copy of each notice, circular, advertisement, 
newspaper article, investment letter, bulletin or 
other communication recommending the purchase 
or sale of a specific security, which the investment 
adviser circulates or distributes, directly or 
indirectly, to ten or more persons (other than 
clients receiving investment supervisory services or 
persons connected with such investment adviser), 
and if such notice, circular, advertisement, 
newspaper article, investment letter, bulletin or 
other communication does not state the reasons for 
such recommendation, a memorandum of the 
investment adviser indicating the reasons thereof; 

(12) The following records: 



(A) A record of every transaction in a security in 
which the investment adviser or any advisory 
representative of such investment adviser 
has, or by reason of such transaction 
acquires, any direct or indirect beneficial 
ownership, except: 

(i) Transactions effected in any account 

over which neither the investment 

adviser nor any advisory 

representative of the investment 

adviser has any direct or indirect 

influence or control; and 

(ii) Transactions in securities which are 

direct obligations of the United States. 

Such record shall state the title and amount 

of the security involved; the date and nature 

of the transaction (i.e., purchase, sale or 

other acquisition or disposition); the price at 

which it was effected; and the name of the 

dealer or bank with or through whom the 

transaction was effected. Such record may 

also contain a statement declaring that the 

reporting or recording of any such 

transaction shall not be construed as an 

admission that the investment adviser or 

advisory representative has any direct or 

indirect beneficial ownership in the security. 

A transaction shall be recorded not later than 

ten days after the end of the calendar quarter 

in which the transaction was effected. 

(B) For purposes of this Subparagraph (a)(12), 
the term "advisory representative" shall mean 
any partner, officer or director of the 
investment adviser; any employee who 
makes any recommendation, who participates 
in the determination of which 
recommendation shall be made, or whose 
functions or duties relate to the determination 
of which recommendation shall be made; any 
employee who, in connection with his duties 
(other than clerical, ministerial or 
administrative duties), obtains any 
information concerning which securities are 
being recommended prior to the effective 
dissemination of such recommendations or of 
the information concerning such 
recommendations; and any of the following 
persons who obtain information concerning 
securities recommendations being made by 
such investment adviser prior to the effective 
dissemination of such recommendations or of 
the information concerning such 
recommendations: 

(i) any person in a control relationship to 

the investment adviser, 
(ii) any affiliated person of such 

controlling person, and 



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PROPOSED RULES 



) 



) 



(iii) any affiliated person of such affiliated 

person. 
"Control" shall have the same meaning as 
that set forth in Section 2(a)(9) of the 
Investment Company Act of 1940, as 
amended. 
(C) An investment adviser shall not be deemed to 
have violated the provisions of this 
Subparagraph (a)(12) because of his failure 
to record securities transactions of any 
advisory representative if he establishes that 
he instituted adequate procedures and used 
reasonable diligence to obtain promptly 
reports of all transactions required to be 
recorded; 
(13) Records required of investment advisers primarily 
engaged in other businesses; 

(A) Notwithstanding the provisions of 
Subparagraph (a)(12) in this Rule, where the 
investment adviser is primarily engaged in a 
business or businesses other than advising 
registered investment companies or other 
advisory clients, a record must be maintained 
of every transaction in a security in which 
the investment adviser or any advisory 
representative of such investment adviser 
has, or by reason of such transaction 
acquires, any direct or indirect beneficial 
ownership, except: 

(i) Transactions effected in any account 

over which neither the investment 

adviser nor any advisory 

representative of the investment 

adviser has any direct or indirect 

influence or control; and 

(ii) Transactions in securities which are 

direct obligations of the United States. 

Such record shall state the title and amount 

of the security involved; the date and nature 

of the transaction (i.e., purchase, sale or 

other acquisition or disposition); the price at 

which it was effected; and the name of the 

dealer or bank with or through whom the 

transaction was effected. Such record may 

also contain a statement declaring that the 

reporting or recording of any such 

transaction shall not be construed as an 

admission that the investment adviser or 

advisory representative has any direct or 

indirect beneficial ownership in the security. 

A transaction shall be recorded not later than 

ten days after the end of the calendar quarter 

in which the transaction was effected. 

(B) An investment adviser is "primarily engaged 
in a business or businesses other than 
advising registered investment companies or 
other advisory clients" when, for each of its 



three most recent fiscal years or for the 
period of time since organization, whichever 
is lesser, the investment adviser derived, on 
an unconsolidated basis, more than 50 
percent of: 

(i) its total sales and revenues, and 
(ii) its income (or loss) before income 
taxes and extraordinary items, from 
such other business or businesses. 

(C) For purposes of this Subparagraph (13), the 
term "advisory representative", when used in 
coimection with a company primarily 
engaged in a business or businesses other 
than advising registered investment 
companies or other advisory clients, shall 
mean any partner, officer, director or 
employee of the investment adviser who 
makes any recommendation, who participates 
in the determination of which 
recommendation shall be made, or whose 
functions or duties relate to the determination 
of which recommendation shall be made, or 
who, in connection with his duties (other 
than clerical, ministerial or administrative 
duties), obtains any information concerning 
which securities are being recommended 
prior to the effective dissemination of such 
recommendations or of the information 
concerning such recommendations; and any 
of the following persons who obtain 
information concerning securities 
recommendations being made by such 
investment adviser prior to the effective 
dissemination of such recommendations or of 
the information concerning such 
recommendations : 

(i) any person in a control relationship to 

the investment adviser, 
(ii) any affiliated person of such 

controlling person, and 
(iii) any affiliated person of such affiliated 

person. 
"Control" shall have the same meaning as 
that set forth in Section 2(a)(9) of the 
Investment Company Act of 1940, as 
amended. 

(D) An investment adviser shall not be deemed to 
have violated the provisions of this 
Subparagraph (13) because of his failure to 
record securities transactions of any advisory 
representative if he establishes that he 
instituted adequate procedures and used 
reasonable diligence to obtain promptly 
reports of all transactions required to be 
recorded; and 

(14) A copy of each written statement and each 
amendment or revision thereof, given or sent to any 



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PROPOSED RULES 



client or prospective client of such investment 
adviser in accordance with the provisions of Rule 
.1707, and a record of the dates that each written 
statement, and each amendment or revision thereof, 
was given, or offered to be given, to any client or 
prospective client who subsequently becomes a 
client. 

(b) If an investment adviser subject to Paragraph (a) of this 
Rule has custody or possession of securities or funds of any 
client, the records required to be made and kept under 
Paragraph (a) of this Rule shaJl also include: 

(1) A journal or other record showing all purchases, 
sales, receipts and deliveries of securities (including 
certificate numbers) for such accounts and all other 
debits and credits to such accounts; 

(2) A separate ledger account for each such client 
showing all purchases, sales, receipts and deliveries 
of securities, the date and price of each such 
purchase and sale, and all debits and credits; 

(3) Copies of confirmations of all transactions effected 
by or for the account of any such client; and 

(4) A record for each security in which any such client 
has a position, which record shall show the name of 
each such client having any interest in each 
security, the amount or interest of each such client, 
and the locations of each such security. 

(c) Every investment adviser subject to Paragraph (a) of 
this Rule who renders any investment supervisory or 
management service to any client shall, with respect to the 
portfolio being supervised or managed and to the extent that 
the information is reasonably available to or obtainable by the 
investment adviser, make and keep true, accurate and current: 

(1) Records showing separately for each such client the 
securities purchased and sold, and the date, amount 
and price of each such purchase and sale; and 

(2) For each security in which any such client has a 
current position, information from which the 
investment adviser can promptly furnish the name 
of each such client, and the current amount or 
interest of such client. 

(d) Any books or records required by this Rule may be 
maintained by the investment adviser in such maimer that the 
identity of any client to whom such investment adviser 
renders investment supervisory services is indicated by 
numerical or alphabetical code or some similar designation. 

(e) Duration requirement for maintenance of records: 

(1) All books and records required to be made under 
the provisions of Paragraphs (a) to (c)(1), 
inclusive, of this Rule shall be maintained and 
preserved in an easily accessible place for a period 
of not less than five years from the end of the fiscal 
year during which the last entry was made on such 
record, the first two years in an appropriate office 
of the investment adviser. 

(2) Partnership articles and any amendments thereto, 
articles of incorporation, charters, minute books, 
and stock certificate books of the investment 



adviser and of any predecessor, shall be maintained 
in the principal office of the investment adviser and 
preserved until at least three years after termination 
of the enterprise. ^ 

(f) An investment adviser subject to Paragraph (a) of this ™ 
Rule, before ceasing to conduct or discontinuing business as 

an investment adviser, shall arrange for and be responsible 
for the preservation of the books and records required to be 
maintained and preserved under this Rule for the remainder of 
the period specified in this Rule, and shall notify the 
administrator in writing of the exact address where such 
books and records will be maintained during such period. 

(g) Preservation and maintenance of records: 

(1) The records required to be maintained and 
preserved pursuant to this Rule may be immediately 
produced or reproduced by photograph on film or, 
as provided in Subparagraph (g)(2) of this Rule, on 
magnetic disk, tape or other computer storage 
medium, and be maintained and preserved for the 
required time in that form. If records are produced 
or reproduced by photographic film or computer 
storage medium, the investment adviser shall: 

(A) arrange the records and index the films or 
computer storage medium so as to permit the 
immediate location of any particular record; 

(B) be ready at all times to provide, and 
promptly provide, any facsimile enlargement 
of film or computer printout or copy of the 
computer storage medium which the A 
administrator by its examiners or other fl 
representatives may request; 

(C) store separately from the original one other 
copy of the film or computer storage medium 1 
for the time required; 

(D) with respect to records stored on a computer 
storage medium, maintain procedures for 
maintenance and preservations of, and access 
to, records from loss, alteration, or 
destruction; and 

(E) with respect to records stored on 
photographic film, at all times have available 
for the administrator's examination of its 
records pursuant to Section 78C- 18(e) of the 
Act, facilities for immediate, easily readable 
projection of the film and for producing 
easily readable facsimile enlargements. 

(2) Pursuant to Subparagraph (g)(1) of this Rule an 
adviser may maintain and preserve on computer 
tape or disk or other computer storage medium 
records which, in the ordinary course of the 
adviser's business, are created by the adviser on 
electronic media or are received by the adviser 
solely on electronic media or by electronic data 
transmission. ^ 

(h) For purposes of this Rule, "investment supervisory ^k 
services" means the giving of continuous advice as to the ^ 
investment of funds on the basis of the individual needs of I 



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PROPOSED RULES 



each client. 

(i) Every registered investment adviser shall maintain 
within this state, in a readily accessible location, all records 
required by this Rule. A written request for the waiver of the 
provisions of this Section may be made to the administrator to 
permit any registered investment adviser to maintain any of 
the records required by this Rule in some place other than the 
State of North Carolina. In determining whether or not the 
provisions of this Rule should be waived, the administrator 
may consider, among other things, whether the main office of 
the investment adviser is in a place outside the State of North 
Carolina or whether the investment adviser uses all or some 
of the bookkeeping facilities of some other investment adviser 
whose main office is outside the State of Nonh Carolina. 

{jl Every investment adviser that has its principal place of 
business in a state other than this state shall be exempt from 
the requirements of this section, provided the investment 
adviser is licensed in such state and is in compliance with 
such state's recordkeeping requirements, requirements, if 
any. 

Authority G.S. 78C-18(a); 78C-18(b); 78C-18(e); 78C-30(a). 

.1712 CHANGE OF NAME OF INVESTMENT 
ADVISER 

Where only a change in the name of the investment adviser 
applicant or registrant occurs, an amended Form ADV or 
ADV-S shall be filed with the administrator together with any 
amendments to the organizational documents, or 
accompanying letters of explanation, within 30 days of the 
date of the change. The investment adviser shall return its 
license and a new license will be issued reflecting the name 
change. There will be no fee for reissuance of the license. 
Each investment adviser representative shall retain his 
investment adviser representative's license and this license 
shall suffice as evidence of licensing under the new 
investment adviser name until renewal. 

Authority G.S. 78C-17(c); 78C-18(d); 78C-30(a); 78C-30(b). 

.1713 INVEST ADVISER MERGER/ 

CONSOLIDATION/ACQUISITION/ 
SUCCESSION 

(a) When there is a merger, consolidation, acquisition, 
succession, or other similar fundamental change in the 
ownership of a registered investment adviser, the surviving or 
new entity shall file with the administrator, prior to such 
fundamental change, an amended Form ADV o r ADV-S or 
successor form, with the plan of fundamental change and a 
letter or any documents of explanation including the date of 
mass transfer of investment adviser representatives pursuant 
to Paragraph (c) of this Rule if contemplated. As soon as 
practicable, but not later than 30 days after the fundamental 
change, the surviving or new entity shall file with the 
administrator the current financial statements of the surviving 
or new entity; the amended or new charter and by-laws; and, 
if applicable, a copy of the certificate of merger. 



consolidation or other fundamental change. 

(b) The registration of the surviving or new entity shall be 
granted by the administrator on the same date that the 
fundamental change becomes effective. Where the 
fundamental change results in a change in the name of the 
surviving or new entity from the name listed on any 
outstanding investment adviser's license, the license shall be 
returned and a new license reflecting the new name will be 
issued. There will be no fee for reissuance of a license. 

(c) Investment advisers shall effect mass transfers of 
investment adviser representatives by filing with the 
Securities Division a Form U-4 or successor form for each 
investment adviser representative to be transferred from the 
nonsurviving entity to the surviving or new entity and a Form 
U-5 or successor form for each investment adviser 
representative not to be transferred. Each transferred 
investment adviser representative shall retain his investment 
adviser representative's license which shall suffice as 
evidence of registration with the surviving or new entity until 
renewal. The transfer of the investment adviser 
representative is effective upon receipt of the Form U-4 or 
successor form by the Securities Division. All Form U-5's or 
successor forms shall be filed as soon as practicable but no 
later than 10 business days after the fundamental change. A 
regular application fee shall be paid by the surviving or new 
investment adviser for each investment adviser representative 
in such transfer. 

(d) When there is a merger, consolidation, acquisition, 
succession, or other similar fundamental change in the 
ownership of an investment adviser covered under federal 
law, and the surviving entity will be an investment adviser 
covered under federal law, the entities involved shall file with 
the Administrator, as and when such forms are filed with the 
U.S. Securities and Exchange Commission, a copy of any 
amendments to their Forms ADV and a copy of any other 
forms filed with the SEC with respect to tlie transaction. The 
transfer of investment adviser representatives to the surviving 
entity shall be governed by the provisions of Paragraph (c) of 
this Rule. 

(e) When there is a merger, consolidation, acquisition, 
succession, or other similar fundamental change in the 
ownership of an investment adviser covered under federal 
law, and the surviving entity will be an investment adviser 
that is registered or required to be registered under the Act, 
such merger, consolidation, acquisition, succession, or other 
similar fundamental change shall be governed by the 
provisions of Paragraphs (a)-(c) of this Rule. 

Authority G.S. 78C-16(b): 78C-17(a); 78C-17(c); 78C-18(b); 
78C-18(c): 78C-18(d); 78C-30(a): 78C-30(b). 

.1714 REGISTRATION OF PARTNERS/ 

EXECUTIVE OmCERS/DIRECTORS 

(a) Any partner, executive officer, director, or a person 
occupying a similar status or performing similar functions 
who represents a registered investment adviser in transacting 
business in this state as an investment adviser shall be 



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PROPOSED RULES 



registered as an investment adviser representative pursuant to 
Paragraph (b) of this Rule. 

(b) Automatic investment adviser representative 
registration for partners, executive officers or directors of a 
registered investment adviser or a person occupying a similar 
status or performing similar functions shall be obtained by 
filing an original or amended Form ADV o r ADV-S and any 
appropriate schedule thereto, providing the required 
disclosures regarding the registrant, and a written notice to 
the Securities Division identifying the registrant and that the 
registrant will engage in the activities as described in 
Paragraph (a) of this Rule; provided, however, if such 
information is currently on file with the administrator then 
the written notice only is required to be filed. Automatic 
registration shall lapse where a material change in the 
information reported on Form ADV o r ADV-S or any 
schedule thereto regarding the registrant has occurred and has 
not been reported to the Securities Division by filing an 
original or amended Form ADV or ADV-S or the appropriate 
schedule therewith current information within ten business 
days of the material change. The investment adviser shall 
timely inform the Securities Division in writing when any 
registrant under this Paragraph ceases to engage in the 
activities described in Paragraph (a) of this Rule for the 
purposes of termination of the automatic investment adviser 
representative registration. Annual renewal is automatic upon 
renewal of the investment adviser registration. 

(c) Failure to maintain a current automatic registration 
pursuant to Paragraph (b) of this Rule for those persons 
described in Paragraph (a) of this Rule may result in violation 
of G.S. 78C-16. 

(d) Automatic registration may be denied, revoked, 
suspended, restricted or limited or the registrant censured as 
provided by G.S. 78C-19. Nothing in this Rule shall limit 
the administrator's authority to institute administrative 
proceedings against an investment adviser, or an applicant for 
investment adviser registration due to the qualifications of or 
disclosures regarding a person described in Paragraph (a) of 
this Rule. 

(e) An investment adviser representative shall not be 
registered with more than one investment adviser regardless 
of whether registration is accomplished or contemplated 
under this Rule or Rule .1703 of this Section unless each of 
the investment advisers which employs or associates the 
investment adviser representative is under common ownership 
or control. 

(f) For the purposes of this Rule, "Executive Officer" shall 
mean the chief executive officer, the president, the principal 
financial officer, each vice president with responsibility 
involving policy making functions for a significant aspect of 
the investment adviser's business, the secretary, the treasurer, 
or any other person performing similar functions with respect 
to an)' organization whether incorporated or unincorporated. 

Authonn- G.S. 78C-16(a): 78C-16(b): 78C-17(a): 78C-18(b); 
78C-18(d); 78C-19(a): 78C-30(a); 78C-30(b). 



SECTION .1800 - MISCELLANEOUS PROVISION- 
INVESTMENT ADVISERS 

.1801 DISHONEST OR UNETfflCAL 
PRACTICES 

(a) An investment adviser or an investment adviser 
covered under federal law is a fiduciary and has a duty to act 
primarily for the benefit of its clients. The provisions of this 
subsection apply to investment advisers covered under federal 
law only to the extent that the conduct alleged is fraudulent or 
deceptive, or as otherwise permitted by the National 
Securities Markets Improvement Act of 1996 (Pub. L^ No. 
104-290). While the extent and nature of his duty varies 
according to the nature of the relationship between an 
investment adviser and its clients and the circumstances of 
each case, an investment adviser or an investment adviser 
covered under federal law shall not engage in unethical 
business practices, including the following: 

(1) Recommending to a client to whom investment 
supervisory, management or consulting services are 
provided the purchase, sale or exchange of any 
security without reasonable grounds to believe that 
the recommendation is suitable for the client on the 
basis of information furnished by the client after 
reasonable inquiry concerning the client's 
investment objectives, financial situation and needs, 
and any other information known or acquired by 
the investment adviser after reasonable examination 
of such of the client's financial records as may be 
provided to the investment adviser; 

(2) Placing an order to purchase or sell a security for 
the account of a client without authority to do so; 

(3) Placing an order to purchase or sell a security for 
the account of a client upon instruction of a third 
pany without first having obtained a written 
third-party trading authorization from the client; 

(4) Exercising any discretionary authority in placing an 
order for the purchase or sale of securities for a 
client without obtaining written discretionary 
authority from the client within 10 business days 
after the date of the first transaction placed pursuant 
to oral discretionary authority. Discretionary 
power does not include a power relating solely to 
the price at which, or the time when, an order 
involving a definite amount of a specified security 
shall be executed, or both; 

(5) Inducing trading in a client's 
excessive in size or frequency 
financial resources, investment 
character of the account; 

(6) Borrowing money or securities from a client unless 
the client is a dealer, an affiliate of the investment 
adviser, or a financial institution engaged in the 
business of lending funds or securities; 

(7) Lending money to a client unless the investmen 
adviser is a financial institution engaged in the' 
business of lending funds or a dealer, or unless the 



I 



i 



account that is 

in view of the 

objectives and 



c 



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12:14 



PROPOSED RULES 



client is an affiliate of the investment adviser; 

(8) Misrepresenting to any advisory client, or 
prospective advisory client, the qualifications of the 
investment adviser or any employee of the 
investment adviser, or misrepresenting the nature of 

the advisory services being offered or fees to be (16) 

charged for such service, or omitting to state a 
material fact necessary to make the statements made 
regarding qualifications, services or fees, in light of 
the circumstances under which they are made, not 
misleading; 

(9) Providing a report or recommendation to any 
advisory client prepared by someone other than the 
adviser without disclosing that fact. (This 
prohibition does not apply to a situation in which 
the adviser uses published research reports or 
statistical analyses to render advice or where an 
adviser orders such a report in the normal course of 
providing service.); 

(10) Charging a client an advisory fee that is (17) 
unreasonable in the light of the type of services to 

be provided, the experience and expertise of the 
adviser, the sophistication and bargaining power of 
the client, and whether the adviser has disclosed 
that lower fees for comparable services may be 
available from other sources; 

(11) Failing to disclose to a client in writing before 
entering into or renewing an advisory agreement 
with that client any material conflict of interest 
relating to the adviser or any of its employees 
which could reasonably be expected to impair the 
rendering of unbiased and objective advice 
including: 

(A) Compensation arrangements connected with 
advisory services to clients which are in 
addition to compensation from such clients (18) 
for such services; and 

(B) Charging a client an advisory fee for 
rendering advice when a commission for 
executing securities transactions pursuant to 
such advice will be received by the adviser 

or its employees; (19) 

(12) Guaranteeing a client that a specific result will be 
achieved (gain or no loss) as a result of the advice 
which will be rendered; 

(13) Publishing, circulating or distributing any 
advertisement which does not comply with Rule (20) 
206(4)- 1 under the Investment Advisers Act of 

1940; 

(14) Disclosing the identity, affairs or investments of (21) 
any client to any third party unless required by law 

to do so, or unless consented to by the client; 

(15) Taking any action, directly or indirectly, with 
respect to those securities or funds in which any 
client has any beneficial interest, where the 
investment adviser has custody or possession of (22) 
such securities or funds when the adviser's action is 



subject to and does not comply with the 
safekeeping requirements of Rule 206(4)-2 under 
the Investment Advisers Act of 1940, unless the 
investment adviser is exempt from such 
requirements by virtue of Rule 206(4)-2(b); 
Entering into, extending or renewing any 
investment advisory contract, other than a contract 
for impersonal advisory services, unless such 
contract is in writing and discloses, in substance: 
the services to be provided; the term of the 
contract; the advisory fee or the formula for 
computing the fee; the amount or the manner of 
calculation of the amount of the prepaid fee to be 
returned in the event of contract termination or 
non-performance; whether the contract grants 
discretionary authority to the adviser; and that no 
assignment of such contract shall be made by the 
investment adviser without the consent of the other 
party to the contract; 

Failing to disclose to any client or prospective 
client all material facts with respect to: 

(A) A financial condition of the adviser that is 
reasonably likely to impair the ability of the 
adviser to meet contractual commitments to 
clients, if the adviser has discretionary 
authority (express or implied) or custody 
over such client's funds or securities, or 
requires prepayment of advisory fees of more 
than five hundred dollars ($500.00) from 
such client, six months or more in advance; 
or 

(B) A legal or disciplinary event that is material 
to an evaluation of the adviser's integrity or 
ability to meet contractual commitments to 
clients; and 

Utilizing an agent or subagent who satisfies the 
definition of an investment adviser representative as 
set forth in G.S. 78C-2(3), where such agent or 
subagent is not registered as an investment adviser 
representative pursuant to G.S. 78C-16. G.S. 78C- 
16; 

Failing to establish, maintain, and enforce written 
policies and procedures reasonably designed to 
prevent the misuse of material nonpublic 
information contrary to the provisions of Section 
204A of the Investment Advisers Act of 1940; 
Entering into, extending, or renewing any advisory 
contract contrary to the provisions of Section 205 
of the Investment Advisers Act of 1940; 
To indicate, in an advisory contract, any condition, 
stipulation, or provisions binding any person to 
waive compliance with any provision of this Act or 
of the Investment Advisers Act of 1940. or any 
other practice that would violate Section 215 of the 
Investment Advisers Act of 1940; 
Engaging in any act, practice, or course of business 
which is fraudulent, deceptive, or manipulative in 



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PROPOSED RULES 



123) 



contravention of Section 206(4) of the Investment 
Advisers Act of 1940; 

Engaging in conduct or any act, indirectly or 

through or bv any other person, which would be 

unlawful for such person to do directly under the 

provisions of this Act or an\' rule or regulation 

thereunder. 

The conduct set fonh in Rule .1801(aj is not exclusive. It 

also includes employing any device, scheme, or artifice to 

defraud or engagmg in any act, practice or course of business 

which operates or would operate as a fraud or deceit. The 

federal statutory' and regulatory provisions referenced herein 

shall apply both to in\estment advisers and to investment 

advisers covered under federal law, to the extent permitted by 

the National Securities Markets Improvement Act of 1996 

(Pub. L. No. 104-290). 

(b) There shall be a rebuttable presumption that the 
following legal or disciplinary events involving the adviser or 
a management person of the adviser (any of the foregoing 
being referred to hereafter as "person") thai were not resolved 
in the person's favor or subsequently reversed, suspended, or 
vacated are material within the meaning of Subparagraph 
(a)(17)(B) of this Rule for a period of 10 years from the time 
of the event: 

(1) A criminal or civil action in a court of competent 
jurisdiction in which the person: 

(A) was convicted, pleaded guilty or nolo 
contendere ("no contest") to a felony or 
misdemeanor, or is the named subject of a 
pending criminal proceeding (any of the 
foregoing referred to hereafter as "action"), 
and such action involved: an 
investment-related business, fraud, false 
statements, or omissions; wrongful taking of 
property; or bribery, forgery, counterfeiting, 
or extortion; 

(B) was found to have been involved in a 
violation of an investment-related statute or 
regulation; or 

(C) was the subject of any order, judgment, or 
decree permanently or temporarily enjoining 
the person from, or otherwise limiting the 
person from. engaging in any 
investment-related activity; 

(2) Administrative proceedings before the 
Administrator, Securities and Exchange 
Commission, any other federal regulatory agency 
or any other state agency (any of the foregoing 
being referred to hereafter as "agency") in which 
the person: 

(A) was found to have caused an 
investment-related business to lose its 
authorization to do business; 

(B) was found to have been involved in a 
violation of an investment-related statute or 
regulation and was the subject of an order by 
the agency denying, suspending, or revoking 



the authorization of the person to act in, or 
barring or suspending the person's 
association with, an investment-related 
business or otherwise significantly limiting 
the person's investment-related activities; or 

(C) was found to have engaged in an act or a 
course of conduct which resulted in the 
issuance by the agency of an order to cease 
and desist the violation of the provisions of 
any investment-related statute or rule; or 
(3) Self-Regulatory Organization (SRO) proceedings in 

which the person: 

(A) was found to have caused an 
investment-related business to lose its 
authorization to do business; or 

(B) was found to have been involved in a 
violation of the SRO's rules and was the 
subject of an order by the SRO barring or 
suspending the person from membership or 
from association with other members, or 
expelling the person from membership; 
fining the person more than two thousand 
five hundred dollars ($2,500.00); or 
otherwise significantly limiting the person's 
investment-related activities. 

(c) The information required to be disclosed by 
Subparagraph (a)(17) shall be disclosed to clients promptly, 
and to prospective clients not less than 48 hours prior to 
entering into any written or oral investment advisory 
contract, or no later than the time of entering into such 
contract if the client has the right to terminate the contract 
without penalty within five business days after entering into 
the contract. 

(d) For purposes of this Rule: 

(1) "Management person" means a person with power 
to exercise, directly or indirectly, a controlling 
influence over the management or policies of an 
investment adviser which is not a natural person or 
to determine the general investment advice given to 
clients; 

(2) "Found" means determined or ascertained by 
adjudication or consent in a final SRO proceeding, 
administrative proceeding, or coun action; 

(3) "Investment-related" means penaining to securities, 
commodities, banking, insurance, or real estate 
[including, but not limited to, acting as or being 
associated with a dealer, investment company, 
investment adviser, go\emment securities broker or 
dealer, municipal securities dealer, bank, savings 
and loan association, entit>' or person required to be 
registered under the Commodity Exchange Act (7 
U.S.C. 1 et seq.), or fiduciary]; 

(4) "Involved" means acting or aiding, abetting, 
causing, counseling, commanding, inducing, 
conspiring with or failing reasonably to supervise 
another in doing an act; and 

(5) "Self-Regulatory Organization" or "SRO" means 



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PROPOSED RULES 



any national securities or commodities exchange, 

registered association, or registered clearing 

agency. 

(e) For purposes of calculating the ten-year period during 

which events are presumed to be material under Paragraph 

(b), the date of a reportable event shall be the date on which 

the final order, judgment, or decree was entered, or the date 

on which any rights of appeal from preliminary orders, 

judgments, or decrees lapsed. 

(0 Compliance with this Rule shall not relieve any 
investment adviser from the obligations of any other 
disclosure requirement under the Act, the rules and 
regulations thereunder, or under any other federal or state 
law. 

Authority G.S. 78C-18(b); 78C-30(a). 



.1802 CUSTODY/CLIENT FUNDS OR SECURITIES 
BY INVESTMENT ADVISERS 

(a) It shall be unlawful for any investment adviser to take 
or have custody of any securities or funds of any client 
unless: 

(1) the investment adviser notifies the administrator in 
writing that the investment adviser has or may have 
custody. Such notification may be given on Form 
ADV; 

(2) the securities of each client are segregated; 

(3) the following conditions are satisfied: 

(A) all client funds are deposited in one or more 
bank accounts containing only clients' funds, 

(B) such account or accounts are maintained in 
the name of the investment adviser as agent 
or trustee for such clients, and 

(C) the investment adviser maintains a separate 
record for each such account showing the 
name and address of the bank where the 
account is maintained, the dates and amounts 
of deposits in and withdrawals from the 
account, and the exact amount of each 
client's beneficial interest in the account; 

(4) immediately after accepting custody or possession 
of funds or securities from any client, the 
investment adviser notifies the client in writing of 
the place where and the manner in which the funds 
and securities will be maintained and subsequently, 
if and when there is a change in the place where or 
the maimer in which the funds or securities are 
maintained, the investment adviser gives written 
notice thereof to the client; 

(5) at least once every three months, the investment 
adviser sends each such client an itemized statement 
showing the funds and securities in the investment 
adviser's custody at the end of such period and all 
debits, credits and transactions in the client's 
account during such period; and 

(6) at least once every calendar year, an independent 



certified public accountant verifies all client funds 

and securities by actual examination at a time 

chosen by the accountant without prior notice to the 

investment adviser. A report stating that such 

accountant has made an examination of such funds 

and securities, and describing the nature and extent 

of the examination, shall be filed with the 

administrator within 30 days after each such 

examination. 

(b) This Rule shall not apply to an investment adviser also 

registered as a broker-dealer under Section 15 of the 

Securities Exchange Act of 1934 if the broker-dealer is: 

(1) Subject to and in compliance with SEC Rule 15c3-l 
(Net Capital Requirements for Brokers or Dealers), 
17 C.F.R. 240.15c3-l under the Securities 
Exchange Act of 1934, or 

(2) A member of an exchange whose members are 
exempt from SEC Rule 15c3-l, 17 C.F.R. 
240.15c3-l under the provisions of Paragraph 
(b)(2) thereof, and the broker-dealer is in 
compliance with all rules and settled practices of 
the exchange imposing requirements with respect to 
financial responsibility and the segregation of funds 
or securities carried for the accounts of customers. 

(c) — Fo r pu rp oses of t his Rule, the term "invcstiiiciit 
advise r " shall include an inves t men t advise r cove r ed unde r 
fede r al law as defined in G.S. 78C-2(4). 

Authority G.S. 78C-18(a); 78C-18(b); 78C-30(a). 

.1803 AGENCY CROSS TRANSACTIONS 

(a) For purposes of this Rule, "agency cross transaction 
for an advisory client" means a transaction in which a person 
acts as an investment adviser in relation to a transaction in 
which the investment adviser, or any person controlling, 
controlled by, or under common control with such investment 
adviser, including an investment adviser representative, acts 
as a broker for both the advisory client and another person on 
the other side of the transaction. When acting in such 
capacity such person is required to be registered as a dealer in 
this state unless excluded from the definition of "dealer" in 
N.C. Gen. Stat. Section 78A-2(2). 

(b) An investment adviser effecting an agency cross 
transaction for an advisory client shall be in compliance with 
Section 78C-8(a)(3) of the Act if the following conditions are 
met: 

(1) The advisory client executes a written consent 
prospectively authorizing the investment adviser to 
effect agency cross transactions for such client; 

(2) Before obtaining such written consent from the 
client, the investment adviser makes full written 
disclosure to the client that, with respect to agency 
cross transactions, the investment adviser will act 
as broker for, receive commissions from and have a 
potentially conflicting division of loyalties and 
responsibilities regarding both parties to the 
transactions; 



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PROPOSED RULES 



(3) At or before the completion of each agency cross 
transaction, the investment adviser or any other 
person relying on this Rule sends the client a 
written confirmation. The written confirmation 
shall include: 

(A) a statement of the nature of the transaction, 

(B) the date the transaction took place, 

(C) an offer to furnish, upon request, the time 
when the transaction took place, and 

(D) the source and amount of any other 
remuneration the investment adviser received 
or will receive in connection with the 
transaction. 

In the case of a purchase, if the investment adviser was not 
participating in a distribution, or, in the case of a sale, if the 
investment adviser was not participating in a tender offer, the 
written confirmation may state whether the investment adviser 
has been receiving or will receive any other remuneration and 
that the investment adviser will furnish the source and amount 
of such remuneration to the client upon the client's written 
request; 

(4) At least annually, and with or as part of any written 
statement or summary of the account from the 
investment adviser, the investment adviser or any 
other person relying on this Rule sends the client a 
written disclosure statement identifying: 

(A) the total number of agency cross transactions 
during the period for the client since the date 
of the last such statement or summary; and 

(B) the total amount of all commissions or other 
remuneration the investment adviser received 
or will receive in connection with agency 
cross transactions for the client during the 
period; 

(5) Each written disclosure and confirmation required 
by this Rule must include a conspicuous statement 
that the client may revoke the written consent 
required under Subparagraph (b)(1) of this Rule at 
any time by providing written notice to the 
investment adviser; and 

(6) No agency cross transaction may be effected in 
which the same investment adviser recommended 
the transaction to both any seller and any 
purchaser. 

(c) Nothing is this Rule shall be construed to relieve an 
investment adviser or investment adviser representative from 
acting in the best interests of the client, including fulfilling 
his duty with respect to the best price and execution for the 
particular transaction for the client nor shall it relieve any 
investment adviser representative of any other disclosure 
obligations imposed by the Act. 

tiit" — Fo r p u rp oses of this Rule, th e tcnn "inves t ment 
adviser" shall include an investment advise r covered unde r 
fede r al law as defin e d in G.S. 78C-2(4). 

Authority G.S. 78C-8(a); 78C-8(f); 78C-J8(b); 7SC-30(a). 



.1804 EXEMPTION/SECTION 78C-8(a)(3)/ 
CERTAIN BROKER-DEALERS 

(a) For purposes of this Rule: 

(1) "Publicly distributed written materials" means 
written materials which are distributed to 35 or 
more persons who pay for those materials; 

(2) "Publicly made oral statements" means oral 
statements made simultaneously to 35 or more 
persons who pay for access to those statements, and 
statements; and 

(3) "Investment adviser" shall include an investment 
adviser covered under federal law as defined in 
G.S. 78C-2(4). 

(b) An investment adviser registered as a broker-dealer 
pursuant to Section 15 of the Securities E.xchange Act of 1934 
shall be exempt from Section 78C-8(a)(3) of the Act in 
connection with any transaction in relation to which that 
broker-dealer acts as an investment adviser: 

(1) solely by means of publicly distributed written 
materials or publicly made oral statements; 

(2) solely by means of written materials or oral 
statements not purporting to meet the objectives or 
needs of specific individuals or accounts; 

(3) solely through the issuance of statistical 
information containing no expressions of opinion as 
to the investment merits of a particular security; or 

(4) any combination of the foregoing services. 

This exemption shall apply only if the materials and oral 
statements disclose that, if the purchaser of the advisory 
communication uses the investment adviser's services in 
connection with the sale or purchase of a security which is a 
subject of the communication, the investment adviser may act 
as principal for its own account or as agent for another 
person. Compliance by the investment adviser with the 
foregoing disclosure requirement shall not relieve it of any 
other disclosure obligations under the Act. 

Authority G.S. 78C-8(f); 78C-30(a). 

.1805 PERFORMANCE-BASED COMPENSATION 
EXEMPTION 

(a) For purposes of this Rule: 

(1) "Affiliate" shall have the same definition as in 
Section 2(a)(3) of the federal Investment Company 
Act of 1940; 

(2) "Client's independent agent" means any person 
who agrees to act as an investment advisory client's 
agent in connection with an advisory contract, but 
does not include: 

(A) The investment adviser relying on this Rule; 

(B) An affiliated person of the investment 
adviser or an affiliated person of an affiliated 
person of the investment adviser including an 
investment adviser representative; 

(C) An interested person of the investment 
adviser; 

(D) A person who receives, directly or 



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PROPOSED RULES 



\ 



indirectly, any compensation in connection 
with the advisory contract from the 
investment adviser, an affiliated person of 
the investment adviser, an affiliated person 
of an affiliated person of the investment 
adviser or an interested person of the 
investment adviser; or 
(E) A person with any material relationship 
between himself (or an affiliated person of 
that person) and the investment adviser (or 
an affiliated person of the investment 
adviser) that exists, or has existed at any 
time during the past two years; 

(3) "Company" means a corporation, partnership, 
association, joint stock company, trust, or any 
organized group of persons, whether incorporated 
or not; or any receiver, trustee in a case under Title 
11 of the United States Code, or similar official or 
any liquidating agent for any of the foregoing, in 
his capacity as such. "Company" shall not include: 

(A) A company required to be registered under 
the federal Investment Company Act of 1940 
but which is not so registered; 

(B) A private investment company (for purposes 
of this Subparagraph (B), a private 
investment company is a company which 
would be defined as an investment company 
under Section 3(a) of the federal Investment 
Company Act of 1940 but for the exception 
from that definition provided by Section 
3(c)(l)of that act); 

(C) An investment company registered under the 
federal Investment Company Act of 1940; or 

(D) A business development company as defined 
in Section 202(a)(22) of the federal 
Investment Company Advisers Act of 1940, 
unless each of the equity owners of any such 
company, other than the investment adviser 
entering into the contract, is a natural person 
or company within the meaning of 
Subparagraph (a)(3) of this Rule; 

(4) "Interested person" means: 

(A) Any member of the immediate family of any 
natural person who is an affiliated person of 
the investment adviser; 

(B) Any person who knowingly has any direct or 
indirect beneficial interest in, or who is 
designated as trustee, executor, or guardian 
of any legal interest in, any security issued 
by the investment adviser or by a controlling 
person of the investment adviser if that 
beneficial or legal interest exceeds: 

(i) one tenth of one percent of any class 

of outstanding securities of the 

investment adviser or a controlling 

person of the investment adviser; or 

(ii) five percent of the total assets of the 



person seeking to act as the client's 
independent agent; or 
(C) Any person or partner or employee of any 
person who, at any time since the beginning 
of the last two years, has acted as legal 
counsel for the investment adviser; — and 
adviser. 

iS) "Investment adviser" shall include an investmen t 

advise r cove r ed und er fede r al law as defined in 
G.S. 70C-2(4). 

(b) Notwithstanding Section 78C-8(c)(l) of the Act, an 
investment adviser may enter into, extend or renew an 
investment advisory contract which provides for 
compensation to the investment adviser on the basis of a share 
of capital gains upon or capital appreciation of the funds, or 
any portion of the funds, of the client if the conditions in 
Subparagraphs (c) through (h) of this Rule are met. 

(c) The client entering into the contract must be: 

(1) A natural person or a company who, immediately 
after entering into the advisory contract has at least 
five hundred thousand dollars ($500,000.00) under 
the management of the investment adviser; or 

(2) A person who the investment adviser and its 
investment adviser representatives reasonably 
believe, immediately before entering into the 
contract, is a natural person or a company whose 
net worth, at the time the contract is entered into, 
exceeds one million dollars ($1,000,000.00). 

For purposes of this Rule, the term "net worth" shall have the 
same meaning as that provided by Rule .1313(b)(2). The net 
worth of a natural person may include assets held jointly with 
that person's spouse. 

(d) The compensation paid to the investment adviser with 
respect to the performance of any securities over a given 
period must be based on a formula with the following 
characteristics: 

(1) In the case of securities for which market 
quotations are readily available within the meaning 
of Rule 2a-4(a)( 1 ) under the Investment Company 
Act of 1940, (Definition of "Current Net Asset 
Value" for Use in Computing Periodically the 
Current Price of Redeemable Security), 17 C.F.R. 
270.2a-4(a)(l), the formula must include the 
realized capital losses and unrealized capital 
depreciation of the securities over the period; 

(2) In the case of securities for which market 
quotations are not readily available within the 
meaning of Rule 2a-4(a)(l) under the Investment 
Company Act of 1940, 17 C.F.R. 270.2a-4(a)(l), 

■ the formula must include: 

(A) the realized capital losses of securities over 
the period; and 

(B) if the unrealized capital appreciation of the 
securities over the period is included, the 
unrealized capital depreciation of the 
securities over the period; and 

(3) The formula must provide that any compensation 



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January 15, 1998 



1332 



PROPOSED RULES 



paid to the investment adviser under this Rule is 

based on the gains less the losses (computed in 

accordance with Subparagraphs (1) and (2) of this 

Paragraph) in the client's account for a period of 

not less than one year. 

(e) Before entering into the advisory' contract and in 

addition to the requirements of Form ADV, the investment 

adviser must disclose in writing to the client or the client's 

independent agent all material information concerning the 

proposed advisory arrangement, including the following: 

(1) That the fee arrangement may create an incentive 
for the investment adviser to make investments that 
are riskier or more speculative than would be the 
case in the absence of a performance fee; 

(2) Where relevant, that the investment adviser may 
receive increased compensation with regard to 
unrealized appreciation as well as realized gains in 
the client's account: 

(3) The periods which will be used to measure 
investment performance throughout the contract 
and their significance in the computation of the fee; 

(4) The nature of any index which will be used as a 
comparative measure of investment performance, 
the significance of the index, and the reason the 
investment adviser believes that the index is 
appropriate; and 

(5) Where the investment adviser's compensation is 
based in part on the unrealized appreciation of 
securities for which market quotations are not 
readily available within the meaning of Rule 
2a-4(a)(l) under the Investment Company Act of 
1940. 17 C.F.R. 270.2a-4(a)(l), how the securities 
will be valued and the extent to which the valuation 
will be independently determined. 

(0 The investment adviser (and any investment adviser 
representative) who enters into the contract must reasonably 
believe, immediately before entering into the contract, that 
the contract represents an arm's length arrangement between 
the parties and that the client (or in the case of a client which 
is a company as defined in Subparagraph (a)(3) of this Rule, 
the person representing the company), alone or together with 
the client's independent agent, understands the proposed 
method of compensation and its risks. The representative of a 
company may be a partner, director, officer or an employee 
of the company or the trustee, where the company is a trust, 
or any other person designated by the company or trustee, but 
must satisfy the definition of client's independent agent set 
forth in Subparagraph (a)(2) of this Rule. 

(g) Any person entering into or performing an investment 
advisor>' contract under this Rule is not relieved of any 
obligations under Section 78C-8(a) or any other applicable 
provision of the Act or any rule or order thereunder. 

(h) Nothing in this Rule shall relieve a client's independent 
agent from any obligation to the client under applicable law. 

Authority G.S. 78C-8(b); 78C-8(c){i); 78C-8(f); 78C-30(a). 



. 1806 TRANSACTIONS DEEMED NOT TO BE 
ASSIGNMENTS 

For purposes of Section 78C-8(c)(2) of the Act, a 
transaction which does not result in a change of actual control 
or management of an investment adviser or investment 
adviser covered under federal law is not an assignment. 

Authority- G.S. 78C-8(c}(2); 78C-8(f); 78C-30(a). 

.1809 PUBLIC INFORMATION (Repealed) 

Authority G.S. 78C-27(a); 78C-30(a); 78C-30(g); 78C-31(c); 
132-1: 132-1.1. 

.1811 FORMS 

For use in compliance with the requirements of the 
provisions of Chapter 78C of the North Carolina General 
Statutes and the rules promulgated thereunder, the following 
forms are available upon request from the Securities Division: 

(1) Uniform Application for Investment Adviser 
Registration (Form ADV); 

(2^ Annual Re p o rt fo r Investment Advise r s Register e d 

Und er the Investment Advise r s Act of 1 9 40 (Foiui 
ADV-S) : 

(2) t3)Uniform Consent to Service of Process (Form 
U-2); 

(3) (4tUniform Form of Corporate Resolution (Form 
U-2A); 

(4) t^Uniform Application for Securities Industry 
Registration or Transfer (Form U-4); 

(5) (-^Uniform Termination Notice for Securities 
Industry Registration (Form U-5); 

(6) t^North Carolina Securities Division Investment 
Adviser's Bond (Form NCIAB); 

(7) t^tCertification of Deposit of Cash or Securities — 
Investment Advisers (Form CDCS-IA); 

(8) t9^onsent To Service of Process (For Use By 
Investment Advisers and Investment Adviser 
Representatives Only); 

(9) t+WTonsent To Service of Process (For Use By 
Investment Adviser Representatives Only); and 

(10) t+Worporate Resolution (For Use By Investment 
Advisers Only). 

Authority G.S. 78C-30(a); 78C-30(b). 



TITLE 19A - DEPARTMENT OF 
TRANSPORTATION 

Notice is hereby given in accordance with G.S. 150B-21.2 
that the North Carolina Department of Transportation, 
Di\ision of Motor Vehicles intends to amend rule cited as 19A 
NCAC 3D .0525 with changes from the proposed text noticed 
in the Register . Volume 12. Issue 8. pages 729 - 730. 

Proposed Effective Date: August 1. 1998 



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PROPOSED RULES 



Instructions on How to Demand a Public Hearing: A 

demand for a public hearing must be made in writing and 
mailed to Emily Lee, Department of Transportation, PO Box 
25201, Raleigh, NC 27611. The demand must be received 
within 15 days of this Notice. 

Reason for Proposed Action: Effective October 1, 1996, 
G.S. 20-54(6) required DMV to refuse to register any motor 
vehicle not in compliance with the vehicle emissions 
inspection requirements of Part 2, Article 3A of Chapter 20 
or when the vehicle owner has failed to pay a civil penalty 
assessed as a result of the failure to comply with the emission 
inspection requirements. By amending this Rule, DMV is 
requiring emissions inspection stations to purchase bar code 
scanners. The Division is now printing bar-code VIN 
numbers on registration cards. Matching the pre-printed bar 
codes with the scanner VlN's will significantly cut the current 
25% error rate. This amendment will also help DMV comply 
with federal EPA requirements. 

Comment Procedures: Any interested person may submit 
written comments on the proposed rule by mailing the 
comments to Emily Lee, Department of Transportation, PO 
Box 25201, Raleigh, NC, 27611, within 30 days after the 
proposed rule is published. 

Editor's Note: An agency may not adopt a rule that differs 
substantially from the text of a proposed rule published in the 
Re gister, unless the agency publishes the text of the proposed 
different rule and accepts comments on the new text. 

Fiscal Note: This Rule does not affect the expenditures or 
revenues of local government or state funds. This Rule does 
not have a substantial economic impact of at least five million 
dollars ($5,000,000) in a 12-month period. 

CHAPTER 3 - DIVISION OF MOTOR 
VEHICLES 



(4) 



performed by the safety equipment inspection 
mechanic. If the vehicle does not have a license 
plate, "none" shall be indicated. If inspected for a 
dealership, the dealer sticker number shall be 
indicated. 

Enter all information if the inspection is performed 
by the safety equipment exhaust emission 
inspection mechanic as requested by the analyzer. 
All vehicle identification numbers entered into the 
NCAS-90 analyzer shall be entered through a "one 
dimensional" (ID) bar-code scanner capable of 
reading vehicle identification numbers and 
information printed on vehicle registration cards. 
A station's failure to maintain an operating bar- 
code scaimer shall result in DMV suspending a 
station's inspection operations until the station has 
a properly functioning bar-code scanner. In the 
event the vehicle identification number is not 
readable by the bar-code scanner or is not printed 
on the registration card, the station shall enter the 
information by scanning the public vehicle 
identification number through the vehicle 
windshield or off of the driver side door or door 
post. If the vehicle identification number cannot be 
scanned through any of the methods listed in this 
Rule, it may be manually entered by entering the 
vehicle identification number correctly twice 
through manual keyboard entry. Stations must 
achieve a match rate to tlie registration data base of 
95% or greater. Failure to maintain a 95% match 
rate for more than three months of a calendar year 
shall result in a Type II penalty. 



Authority G.S. 20-2; 20-39; 20-183.2; 20-183.6A. 



TITLE 21 - OCCUPATIONAL LICENSING 
BOARDS 



SUBCHAPTER 3D - ENFORCEMENT 
SECTION 

SECTION .0500 - GENERAL INFORMATION 

REGARDING SAFETY INSPECTION 

OF MOTOR VEHICLES 

.0525 PRE-INSPECTION REQUIREMENTS 

Prior to performing an inspection, the inspection mechanic 
shall: 

(1) Have all occupants leave the vehicle. 

(2) Require the operator to produce the current 
registration card to the vehicle. 

(3) Print or write legibly, use a ball point pen, and list 
the license plate number, serial number, mileage, 
number of cylinders, make, year and other required 
information for the vehicle on the Receipt and 
Statement (Form No. SI-15) if the inspection is 



CHAPTER 34 - BOARD OF MORTUARY SCIENCE 

Notice is hereby given in accordance with G. S. 150B-21 . 2 
that the North Carolina Board of Mortuary Science 
intends to amend rules cited as 21 NCAC 34A .0126, .0201; 
34B .0102, .0103; 34D .0101, .0303, and repeal 34B .0201, 
. 0403. Notice of Rule-making Proceedings was published in 
the Register on November 3, 1997. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 9:00 a.m. on 
February 17, 1998 at the NC Board of Mortuary Science. 801 
Hillsborough St.. Raleigh. NC 27603. 

Reason for Proposed Action: S.L. 1997-399 made statutory 
changes that require rules amendments. The Board's 
experience with some rules indicates that they should be 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1334 



PROPOSED RULES 



amended. The Board sees no need for two ndes and proposes 
10 repeal them. 



Comment Procedures: Interested person may submit written 
comments to the NC Board of Mortuary Science. PO Box 
27368. Raleigh NC 27611-7368. by mail: or by hand delivery 
to the Board at 801 Hillsborough Street. Raleigh NC 27603. 
Written statements must be delivered no later than the date 
and time of the public hearing. Also, oral statements may be 
made at the hearing. 

Fiscal Note: Rule 21 NCAC 34A .0126 affects the 
e.xpenditures or revenues of local government funds. Rule 21 
NCAC 34A .0201 affects the expenditure or distribution of 
State funds. Rules 21 NCAC 34B .0102. .0103. .0201. 
.0403. 34D .0101. .0303 do not affect the expenditures or 
revenues of state or local government funds. None of these 
Rules have a substantial economic impact of at least five 
million dollars ($5,000,000) in a 12-month period. 

SUBCHAPTER 34A - BOARD FUNCTIONS 

SECTION .0100 - GENERAL PROVISIONS 

.0126 COMPLAINTS; PRELIMINARY 
DETERMINATIONS 

(a) A person who believes that any person, firm or 
corporation is in violation of any provision of G.S. 90, 
Article 13A, 13C or 13D, or Title 21, Chapter 34, of the 
North Carolina Administrative Code, may file a written 
complaint with the Board's staff. If the accused is subject to 
the jurisdiction of the Board, the complaint shall be handled 
pursuant to this Rule. 

(b) A complaint shall be handled initially by the Board's 
Executive Director, Director of Preneed Regulation or their 
staff designees, who may dismiss it as unfounded, frivolous 
or trivial. Complaints against persons subject to the Board's 
jurisdiction pursuant to G.S. 90, Article 13A and 13C, shall 
be handled by the E.xecutive Director or staff designated by 
him or her, and complaints against persons subject to the 
Board's jurisdiction pursuant to G.S. 90, Article 13D, shall 
be handled by the Director of Preneed Regulation or staff 
designated by him or her. 

(c) Unless the complaint is dismissed pursuant to 
Paragraph (b) of this Rule, the Executive Director, Director 
of Preneed Regulation or their staff designees shall notify the 
accused of the complaint in writing. Such notice shall be sent 
by certified mail, return receipt requested; shall state the 
allegations as contained in the complaint, or may enclose a 
copy of the complaint; and shall contain a request that the 
accused submit a response in writing within 10 days from the 
date the notice of the complaint is received by the accused. 

(d) If the accused admits the allegations, and if, in the 
opinion of the Executive Director, Director of Preneed 
Regulation or their staff designees, the matter does not merit 
review b\- the Board's disciplinary committee, the Executive 



Director, Director of Preneed Regulation or their staff 
designees shall accept the admission of guilt and shall 
acknowledge the admission in a letter to the accused. 

(e) If the accused admits the allegations, and if, in the 
opinion of the Executive Director, Director of Preneed 
Regulation or their staff designees, the matter merits review- 
by the Board's disciplinary committee, the Executive 
Director, Director of Preneed Regulation or their staff 
designees shall refer the matter to the committee. After 
reviewing the allegations and response, the committee shall 
make a preliminary determination of the charges and shall 
recommend to the Board which of the actions in Paragraph 
(h) of this Rule should be taken. 

(f) If the accused does not respond to or denies the 
allegations, the Board's Executive Director, Director of 
Preneed Regulation or their staff designees shall investigate 
the allegations, and they may dismiss the complaint as 
unfounded, frivolous or trivial, or may refer the complaint, 
response, if any, and any other available evidence to the 
Board's disciplinary committee for review. From such 
review, the committee shall make a preliminary determination 
and shall recommend to the Board which of the actions in 
Paragraph (h) of this Rule should be taken. 

(g) The complaint, response, if any, other evidence and 
disposition of each case shall be placed in a permanent file of 
the accused. When a second complaint is filed against the 
accused during a period of twelve months, or a third 
complaint is filed against the accused during any period of 
time, the Executive Director, Director of Preneed Regulation 
or their staff designees shall present the file to the 
disciplinary committee for a review. From such review, the 
committee shall make a preliminary determination of the new 
complaint and shall recommend to the Board which of the 
actions in Paragraph (h) of this Rule should be taken. 

(h) In accordance with Paragraphs (e) through (g) of this 
Rule, the disciplinary committee shall review the complaint 
and the file, if applicable, shall make a preliminary 
determination, and shall reconmiend to the Board that one of 
the following actions be taken: 

( 1 ) that the complaint be dismissed as unfounded, 
frivolous or trivial; 

(*» that, in the cas e of an all e g e d violation of G.S. 9 0, 

A r ticle 13 A, the cas e be com p romised p ursuant to 
G.S. 9 0-210.25(0(1) or that it be set for a 
contested case hearing in acco r dance with G.S. 
150D, A r ticle 3A, and t he r ules of the Board; 

(3^ that, in the case of an alleged violati o n of G.S. 9 0, 

A r ticle 13C, the case be set fo r a cont e st e d cas e 
h e a r ing in acco r danc e with G.S. 150B, Article 3A, 
and th e r ules of th e Board; o r 

(4i that, in the case of an alleged violation of G.S. 9 0. 

■■\rticlc 13D. the case be se t fo r a contested — case 
h e aring befo r e an administ r ative law judge, — as 



1335 



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January 15, 1998 



12:14 



PROPOSED RULES 



I 



pr o vided by G.S. 9 0-2 10. 9 (c). 

(2) that the case be compromised pursuant to G.S. 90- 
210.25(e)(1). 90-210.43(0. or 90-2 10.69(c): or 

(3) that the case be set for a contested case hearing. 

(i) The Board may accept or reject, in whole or in part, the 
recommendations of the disciplinary committee. 



Authority G.S. 90-210.23(a); 
(g); 90-210.50(0): 90-210.69. 



90-210.25 ie): 90-210. 43(f), 



) 



SECTION .0200 - FEES AND 
OTHER PAYMENTS 

.0201 FEES AND PENALTIES 

(a) Fees for funeral service shall be as follows: 
Establishment permit 

Application $250.00 

Annual renewal $150.00 

Late renewal penalty $100.00 

Establishment and embalming facility reinspection 

fee $100.00 

Courtesy card 

Application $ 75.00 

Annual renewal $ 50.00 

Out-of-state licensee 

Application $200.00 

Embalmer, funeral director, funeral service 

Application, North Carolina resident$150.00 



\ 



Application, non-resident 


$200.00 


Annual renewal 






Embalmer 




$40.00 


Funeral Director 




$ 40.00 


Total fee, embalmer 


and funeral 


director, 


when both are held by 


same person 


$60.00 


Funeral service 




$60.00 


Reinstatement fee 




$ 50.00 


Resident trainee permit 






Application 




$50.00 


Annual renewal 




$35.00 


Late renewal penalty 




$ 25.00 


Duplicate License certificate 




$ 25.00 


Chapel registration 






Application 




$150.00 


Annual renewal 




$100.00 


(b) Fees for crematories shall be as i 


bllows: 




License 






Application 




$400.00 


Aimual renewal 




$150.00 


Late renewal penalty 




$ 75.00 


Crematory reinspection fee 




$100.00 


Per-cremation fee 




$ 5.00 


Late filing or pavment penalty for each 




cremation 




$ 10.00 


Late filing penalty for cremation report. 




per month 




$ 75.00 


(c) Fees for preneed funeral contraci 


t regulation shall be as 


follows: 







Preneed funeral establishment license 

Application $100.00 

Annual renewal $100.00 

Late renewal penalty $100.00 

Preneed sales license 

Application $ 10.00 

Annual renewal $ 10.00 

Late renewal penalty S 25.00 

Preneed licensee reinspection fee $100.00 

Preneed contract filings 

Filing fee for each contract $ 18.00 
Late filing or payment penalty for each 

contract J 25.00 

Late filing penalty for each certificate of 

performance $ 25.00 
Late filing penalty for aimual report $150.00 

Authority G.S. 90-2 10. 23 (a); 90-210.28; 90-210.43(g); 90- 
210.48; 90-210.67(b),(c),(d),(dl); 90-210.68(a). 

SUBCHAPTER 34B - FUNERAL SERVICE 

SECTION .0100 - RESIDENT TRAINEES 

.0102 TRAESfEESHIP 

The resident traineeship must be 12 months of full-time 
em p loyment — t o b e — served during — regulai — o ffic e — h o u r s, 
employment, excluding two weeks vacation and one week 
sick leave. Daytime and nighttime employment shall be 
acceptable so long as the trainee receives training in all 
aspects of the license sought, as defined in G.S. 90- 
210.20(e). (f). and(k). 



Authority G.S. 

90-210.25(a)(ld), (2d), (3d), (4). 



.0103 



90-210. 23(a), (f); 



AUTHORIZED PRACTICE: 
SUPERVISION 

(a) Duly certified resident trainees in training for funeral 
service, duly certified resident trainees in training for funeral 
directing and duly certified resident trainees in training for 
embalming, while participating in learning experiences and 
while supervised by a person licensed by the Board as a 
funeral service licensee, funeral director or embalmer, 
respectively, may assist in the practice of funeral service, 
funeral directing or embalming respectively, as limited by 
this Rule. 

(b) Duly certified resident trainees in training for funeral 
service or for funeral directing, while participating in 
learning experiences and while supervised by a person 
licensed by the Board as a preneed sales licensee, may also 
assist in the preneed funeral planning activities described in 
21 NCAC 34D .0202(b)(1), (2), (4) and (5). 

(c) No credit shall be given for the resident trainee's work 
that is unsupervised or performed under the supervision of a 
person not re gistered with the Board as the resident trainee's 
supervisor. If the registered supervisor does not supervise the 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1336 



PROPOSED RULES 



resident trainee for a continuous period of more than two 
weeks, the traineeship under that supervisor shall terminate, 
requiring a new traineeship application. When a resident 
trainee assists in funeral service, funeral directing, embalming 
or preneed funeral planning rrroT on the pr emises of a fune r al 
home, the funeral home premises, a licensed supervisor shall 
be on the funeral home premises where and while such 
activities are performed. When a resident trainee assists in 
funeral service, funeral directing, embalming or preneed 
funeral planning off the funeral home premises, such 
activities shall be performed only in the presence of the a 
licensed supervisor. 

(d) The A licensed supervisor shall review with the 
purchaser any contract negotiated by a resident trainee, and 
then the licensed supervisor shall obtain the purchaser's 
signature on the contract in the licensed supervisor's 
presence. 

(e) The resident trainee's license certificate for indicating 
the trainee's authority to assist in the activities described and 
authorized in this Rule and in 21 NCAC 34D .0202(b) is the 
resident trainee pocket certificate. 

Auihonty G.S. 90-210. 23(a). (f): 90-210. 25(a)(4): 90- 
210.67(a): 90-210. 69(a). 

SECTION .0200 - EXAMCS'ATIONS 

.0201 DATES OF EXAMCSATIONS 

Th e Board shall mee t during .^pril and Nov e mb er e ach y e ar 
t o examine t hose a p plican t s fo r licenses whose applications 
have been a ppr oved by the Board. 

Authority G.S. 90-210. 23la): 90-210.22: ISOB-lKl). 

SECTION .0400 - CONTINUING 
EDUCATION 

.0403 REQUIREMENT EOR LICENSE 
RELNST.ATEMENT 

Unl e ss t he a pp lican t is ex e m p t e d f r om continuing educa t ion 
as pr ovided bv ' la\v. no licens e n ' hich has been sus p ended, 
r evoked, o r fo r fei t ed shall be r eins t a t ed un t il t he Board has 
found tha t the a p plicant fo r r einsta t ement has taken at l e as t 
fiv e hou r s of a ppr ov ' cd con t inuing education cou r ses du r ing 
the 12 m o nths immediately preceding the r einsta t ement. 

Authority G.S. 90-210. 23(a): 90-210. 25(a)(5): 1508-11(1). 

SUBCHAPTER 34D - PRENTED FL7>.'ER.\L 
CONTRACTS 

SECTION .0100 - GENTIUAL PROVISIONS 

.0101 APPROVAL OF CONTRACT FORMS 

No preneed funeral contract form shall be approved by the 
Board unless it, with any attachments, meets the following 
requirements, insofar as they are applicable to the lawful. 



intended sales transaction: 

(1) Is written in clear, understandable language and is 
printed in eas\-to-read t\ pe, size and style, style on 
paper not larger than 8 Vi by 14 inches, with 
printing on both sides permitted. 

(2) States or provides space for insening the name, 
address and preneed funeral establishment license 
number of the contracting funeral establishment. 

(3) Provides space for inserting the names, addresses 
and Social Security numbers of the purchaser and 
contract beneficiarv'. 

(4) P r ovides s p ace fo r States that a description of the 
merchandise and services p u r chased, purchased is 
attached to the seller's and purchaser's copies of the 
contract and is a part of the agreement. The 
attachment shall be a form provided by the Board 
satisfying the requirements of a "statement of goods 
and services selected" as described in Funeral 
Industry Practices. 16 C.F.R. 453 (1984). as 
amended from time to time. 

(5) Discloses any penalties or restrictions, including 
geographical restrictions, on the deliverv' of 
merchandise and services. 

(6) States whether it is a standard or inflation-proof 
contract and summarizes, consistent with North 
Carolina law. the incidents of such type of contract. 

(7) Provides space for insening the financial 
transaction. 

(8) Provides space for the purchaser to indicate, by the 
purchaser's signature or initials, the following: 

(a) The purchaser's choice of trust-funded or 
insurance-funded contract. 

(b) That the purchaser acknowledges that the 
funeral establishment will retain, and not 
deposit in trust, a stated percentage (not 
more than 10%) of the purchaser's 
payments. 

(c) The purchaser's choice of revocable or 
irrevocable contract. 

(d) That the purchaser acknowledges that the 
sale was made at the funeral establishment's 
place of business, so as to negate the 
cancellation rights connected with an off- 
premises sale. 

(9) Contains notice, in bold type, of the purchaser's 
right to cancel an off-premises sale. 

(10) Contains notice, in bold type, that if the purchaser 
does not receive notification from the Board, within 
30 days, that it has received a copy of the contract, 
the purchaser should notify- the Board at its current, 
stated address and telephone number. 

(1 1 ) Explains the parties' rights and obligations, 
consistent with North Carolina law. with respect to 
contract revocation. default. the funeral 
establishment's retention of a portion of the 
purchase price free of the trust, and the substitution 
of funeral homes to perform the contract. 



1337 



.\ORTH C.AROLI.XA REGISTER 



January 15, 1998 



12:14 



PROPOSED RULES 



(12) Contains a notice of the existence of the Board's 
preneed recovery fund. 

(13) Contains, or refers to an attachment containing, all 
funeral sales disclosures to consumers as required 
by federal and North Carolina law. 

(14) Provides spaces for the signatures of the parties to 
the contract, including the signature and preneed 
sales license number of the preneed sales licensee 
who sold the preneed fune r al con t ract and the 
signa t u r e and license numbe r of a p e r son licensed 
as a funeral di r ecto r o r fune r al se r vice licensee 
pursuant to G.S. 90, A r ticle 13A. contract. On 
forms used on and after January 1, 1 99 4, the The 
following shall appear, in bold type, beneath the 
signature of the preneed sales licensee: "Signed 
and preneed sales license number affixed in 
presence of Purchaser at time of sale. " 

Authority G.S. 90-210.62(b); 90-210.69(a}, (c)(6). 

SECTION .0300 - OPERATIONS 

.0303 CERTinCATE OF PERFORMANCE 

(a) The certificate of performance or similar claim form as 
required by G.S. 90-2 10.64(a) shall be a form as approved by 
the Board and shall require the following information: the 
names, addresses and preneed funeral establishment license 
numbers of the performing funeral establishment and the 
contracting funeral establishment; the name of the deceased 
beneficiary of the preneed funeral contract; the date of death 
and the county where the death certificate was or will be 
filed; the invoice amount; certification that the contract was 
or was not performed in whole or in part and how the funds 
will be applied; certification that the services and 
merchandise contracted for were supplied, except for any 
substitutions that are acknowledged in writing by the 
purchaser on or attached to the final bill; the name and 
address of the financial institution where the preneed trust 
funds are deposited and the trust account or certificate 
number; the name and address of the insurance company 
which that issued the prearrangement insurance policy and the 
policy number; and the amount and the date of the payment 
by the financial institution or insurance company and to 
whom paid. 

(b) The form shall be completed by each funeral 
establishment performing any services or providing any 
merchandise pursuant to the preneed funeral contract, or, if 
none are performed or provided, by the contracting funeral 
establishment. The form shall be presented to the financial 
institution or insurance company for payment. Within 10 
days following its receipt of payment, any funeral 
establishment which that is required to complete the form 
shall mail a copy to the Board. 

Authority G.S. 90-2 10.69(a); 90-2 10.64(a): 90-210.68. 



CHAPTER 40 - BOARD OF OPTICIANS 

Notice is hereby given in accordance with G.S. 150B-21.2 
that the State Board of Opticians intends to adopt rule 
cited as 21 NCAC 40 .0324 and amend 40 .0104. .0108, 
.0202, .0212, .0214, .0319. Notice of Rule-making 
Proceedings was published in the Register on November 3, 
1997. 

Proposed Effective Date: August 1, 1998 

A Public Hearing will be conducted at 9:00 a.m. on 
February 18, 1998 at the State Board of Opticians. 222 North 
Person St., Raleigh, NC 27601. 

Reason for Proposed Action: S.L. 1997-424 made statutory 
changes that require rules amendments and the adoption of a 
new nde. Also, the agency proposes to make a few stylistic 
changes, and, in 21 NCAC 40 .0214. to change slightly the 
disciplinary procedure. 

Comment Procedures: Interested persons may submit 
written comments to the State Board of Opticians, Box 25336, 
Raleigh, NC 27611-5336, by mail: or by hand delivery to the 
Board at 222 North Person Street. Raleigh, NC 27601. 
Written statements must be delivered no later than the date 
and time of the public hearing. Also, oral statements may be 
made at the hearing. 

Fiscal Note: 21 NCAC 40 .0108, .0214 - these Rules affect 
the expenditure or distribution of State funds but do not affect 
local finds. 21 NCAC 40 .0104, .0202, .0212, .0319. .0324 
- these Rules do not affect the expenditures or revenues of 
state or local government funds. These Rules do not have a 
substantial economic impact of at least five million dollars 
($5,000,000) in a 12-month period. 

SECTION .0100 - LOCATION 

.0104 INFORMATION AND APPLICATION 

Any person desiring to become a North Carolina licensed 
optician, upon request, will be provided appropriate 
information on the requirements for licensure, including an 
application form prepared by the Board, which must be 
completed in order to sit for the licensure examination. The 
application shall require information including, but not 
limited to, the applicant's age, qualifications, a current 
photograph, and a statement whether the applicant has 
violated th e o p t i cianty laws G.S. 90. Article 17. or Title 21. 
Chapter 40. of the North Carolina Administrative Code, or 
r ules of this State or has been convicted of a crime . Each 
application must be signed under oath. 



Authority G.S. 

249.1(a)(8). 



90-237; 90-239; 90-240; 90-249(6); 90- 



******************** 



.0108 FEES 



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TliL Doai ' d charges the maximum fees allowed by G.S. 9 0- 
24fr Fees charged by the Board shall be as follows: 

(1) Each examination $150.00 

(2) Each initial license S 40.00 

(3) Each renewal of license S 75.00 

(4) Each license issued to a practitioner of another state 
to practice in this state $175.00 

(5) Each registration of an optical place of 

business S 35.00 

(6) Each a pplication for registration as an optician ry 
apprentice or intern, and renewals thereof S 25.00 

(7) Each registration of a training 

establishment S 25.00 

(8) Each license verification requiring file 

search S 10.00 

Authority G.S. 90-246; 90-249(9). 

SECTION .0200 - CONDUCT OF 
REGISTRANTS 

.0202 REGISTRATION OF PLACE OF 
BUSINESS 

(a) As used in this Rule, "optical place of business" means 
the principal office as well as each branch office of such a 
business. 

(b) Every optical place of business shall have a licensed 
optician in charge, who shall serve as the registered licensee 
in charge of only one optical place of business. 

(c) Every optical place of business shall be registered with 
the Board within ten days following its opening for business 
and thereafter annually and in the event of relocation, change 
of ownership or change of licensed optician in charge. The 
registration fee shall be paid for each registration. 

(d) Registration of an optical place of business 
automatically expires on the first day of July of each year, 
and it shall not engage in business until it is registered for the 
next annual period. 

(e) Registration is the responsibility of both the licensed 
optician in charge and the owner. Any licensed optician in 
charge of an optical place of business which violates the 
registration requirements of this Rule shall be subject to the 
Board's disciplinary authority under G.S. 9 0-249(b). 90- 
249.1. An injunction closing an unregistered optical place of 
business may also be obtained. 

(0 An optical place of business registered in compliance 
with this Rule is eligible to be a training establishment when 
the requirements of Rules .0304, .0314 and .0321 of this 
Chapter are met. 

Authority G.S. 90-239; 90-243; 90-249(5); 90-252; 90-253. 

.0212 DUTY TO PROVIDE DIRECT SUPERVISION 

The failure of a licensed optician, who owns or has a 
controlling interest in an optical place of business or under 
whose name an optical place of business or branch thereof is 
registered, to provide direct supervision of an unlicensed 



person working at such business or branch and performing 
acts constituting the practice of opticianry shall constitute a 
violation of G.S. 9 0-24 9 (b) and of G.S. 9 0-253. 90- 
249.1(a)(2). 

Authority G.S. 90-239; 90-249.1 (a)(2); 90-253. 

.0214 COMPLAINTS; PRELIMINARY 
DETERMINATIONS 

is) A p e r son who believes tha t any person, firm oi 

co rp o r ation is in viola ti on of any pr ovision of G.S. 9 0, 
A r ticl e 17, o r Titl e 21, Chapte r 40. of the No r th Cai - olina 
Adminis t ra t ive Code, may file a w r i t ten complain t witl ' i the 
Boa r d's staff. — If the accused is subjec t to the ju r isdiction o f 
t he Board, the com p laint shall be handled p u r suant to this 
RtricT 

ftr) £aj A complaint shall be handled initially by the 
Board's Administrative Director or his staff design e e another 
member of the Board's staff designated by the Administrative 
Director , who may dismiss it as unfounded, unfounded 
f r ivolous or trivial. 

tci IbJ Unless the complaint is dismissed pursuant to 
Paragraph (ItI (a) of this Rule, the Administrative Director or 
hrs staff designee shall notify the accused of the complaint in 
writing. Such notice shall be sent by certified mail, return 
receipt requested; shall state the alleged facts as contained in 
the complaint, or may enclose a copy of the complaint; and 
shall contain a request that the accused submit an answer in 
writing within 20 days from the date the notice of the 
complaint is received by the accused. 

td^ lei If the accused admits to the charges, and if, in the 
opinion of the Administrative Director or his staff designee, 
the charges do not merit review by the Board's disciplinary 
committee, the Administrative Director or his staff designee 
shall acce p t the accused's admission of guilt and shall issue a 
letter of caution o r reprimand on behalf of the Board. Tire 
l e tt er shall include an o r de r to the accused to r ef r ain f r om 
viola t ing G.S. 9 0, Article 17. o r Title 21, Cha p te r 40, of the 
No r th Carolina Administ r ativ e Code in th e futu re . 

fri [d] If the accused admits to the charges, and if, in the 
opinion of the Administrative Director or his staff designee, 
the charges merit review by the Board's disciplinary 
committee, the Administrative Director or his staff designee 
shall refer the complaint to the committee. After reviewing 
the charges, the committee shall make a preliminary 
determination of the charges and shall recommend to the 
Board which of the actions listed in Paragraph ttr) tfl of this 
Rule should be taken. 

ffi (el If the accused does not respond to or denies the 
charges, the Board's Administrative Director or his staff 
designee shall investigate the allegations contained in the 
complaint, and the Administrative Director or his staff 
designee may dismiss the complaint as unfounded, unfounded 
f r ivolous or trivial, or may refer the complaint, evidence and 
investigative findings to the Board's disciplinary committee 
for review. From such review, the committee shall make a 
preliminary determination of the charges and shall 



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recommend to the Board which of the actions listed in 
Paragraph ftr^ (U of this Rule should be taken. 

fg) — The complain t , evidence, investigative findings and 
disposition of each case shall be placed in a permanent file of 
t he accused. — When a second com p laint is filed against the 
accused during a pe riod of 12 months, o r a third com p lain t is 
filed against the accused du r ing any p e r iod of tim e , the 
Administrative Dir e ctor o r his staff designee shall pr e s e n t th e 
accused's file to the disci p linaiy committee fo r a r eview. 
From such review, the committee shall make a pr eliminary 
dctcimination of the new com p lain t and r econunend t o the 
Board which of the actions listed in Parag r a p h (h) of this Rule 
should be t aken. 

fh) £f) In accordance with Paragraphs ( e ) through (g) (d) 
and (e) of this Rule, the disciplinary committee shall re c e iv e 
and review the complaint and evidence t h e accused's file, if 
applicable , shall make a preliminary determination, and shall 
recommend to the Board that one of the following actions be 
taken: 

(1) the charges be dismissed as unfounded, unfounded 
frivolous or trivial; 

iir) a letter of caution be issued t o the accused by t he 

Board; 

(2) (3^in a case of admission of guilt, a letter of 
reprimand be issued to the accused by the Board; or 

(3) a compromise be accepted from the accused, which 
may include, among other things, reprimand, 
probation, and a civil penalty; or 

(4) the case be presented to the Board, excluding Board 
members who participated in the preliminary 
determination, for a contested case hearing, to be 
conducted in accordance with G.S. 9 0-24 9 and 
G.S. 150B. A rt icle 3 A. and the mles of the Boa r d 
hearing. 

(g) The Board shall not be required to follow the 
recommendations of the disciplinary committee. 

(h) The Board may issue reprimands and impose 
probation. Probation shall be conditioned upon the licensee's 
not violating any provision of G.S. 90. Article 17. or Title 
21. Chapter 40. of the North Carolina Administrative Code, 
with suspension, revocation, or refusal to renew or reinstate a 
license upon failure to comply with the conditions. 

Authority G.S. 90-239; 90-249(8); 90-249.1. 



SECTION .0300 - QUALIHCATIONS: 
APPLICATIONS: AND LICENSEMG 

.0319 APPLICANTS FROM OTHER STATES 

(a) An applicant seeking licensure in North Carolina under 
G.S. 90-24 1(a) shall tender an application to the Board 
accompanied by affidavits from two persons with whom the 
applicant worked as an optician for the previous four years. 
In addition, the applicant shall furnish affidavits from two 
licensed refractionists, either ophthalmologists or 
optometrists, that the applicant has practiced the profession of 
opticianry for four years in another state immediately prior to 
the application. 

(b) An applicant seeking admission to an examination 
under G.S. 90-241(b) shall tender an application to the Board 
accompanied by affidavits from two persons who — arc 
licensed, ce r tifi e d o r oth er wis e authorized by another s t a te to 
engage in the pr actice of o p tician r y and under whom or with 
whom the applicant lawfully worked in the practice of 
opticianry in the other state , either in one or multiple places 
of business. The application and the affidavits shall describe 
the tasks performed by the applicant in the other state and the 
dates the tasks were performed. 

(c) An application under G.S. 90-241(a) must be filed with 
the Board not more than 90 days following the termination of 
the applicant's out-of-state opticianry work for which the 
applicant claims credit. 

Authority G.S. 90-237; 90-239; 90-241; 90-249(12). 

.0324 CHARACTER; CONVICTIONS 

When any provision of G.S. 90. Article 17. requires an 
applicant to have good moral character, the applicant shall 
submit to the Board affidavits of two persons who have been 
acquainted with the applicant for at least three years 
immediately preceding the application. The Board shall 
require applicants for licensure and for license renewals and 
reinstatements to state whether the applicant has been 
convicted of a crime. 



Authority G.S. 
249.1(a)(8). 



90-237(2a); 90-239; 90-241 (a)(2); 90- 



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Tfie Codifier of Rules has entered the following temporary nde(s) in the North Carolina Administrative Code. Pursuant 
to G.S. 150B-21.} (e), publication of a temporary rule in the North Carolina Register serves as a notice of rule-making 
proceedings unless this notice has been previously published by the agency. 



TITLE 10 - DEPARTMENT OF HEALTH AND 
HUMAN SERVICES 



Rule-making Agency: 

Assistance 



DHHS - Division of Medical 



Rule Citation: 10 NCAC 26H .0102; .0211. .0401 

Effective Date: January 22. 1998 

Findings Reviewed and Approved by: Beecher R. Gray 

Authority for the rule-making: G.S. 108A-25(b): 108A-54: 
108A-55.' 29 CFR 1910, Subpart Z: 42 CFR 447. Subpart C 

Reason for Proposed Action: Rule .0102 - action is 
necessary to reduce future growth rate in the Medicaid 
program as mandated by the General Assembly. This change 
also allows the Division to calculate direct labor inflation 
component of the inflation methodology based on change in 
North Carolina service workers index, as provided by State 
Budget Office. In addition, reduces inflation calculation for 
fiscal year 1998 only. Rule .0211 - action is necessary to 
reduce future growth rate in the Medicaid program as 
mandated by the General Assembly. This change also allows 
the Division to calculate annual inpatient hospital inflation 
based on lower of current method or amount allowed by 
Medicare. Rule . 0401 - To cap physician allowable amounts 
not to e.xceed the Medicare allowable amount for the same or 
similar services, or if the fee may e.xceed the Medicaid fees 
for similar services, or if the fee is too high in relation to the 
skills, time and other resources required to provide the 
particular service. 

Comment Procedures: Written comments concerning this 
rule-making action must be submitted to Portia W. Rochelle. 
Rule-making Coordinator. Division of Medical Assistance, 
1985 Umstead Drive. Raleigh. NC 27603. 

CHAPTER 26 - MEDICAL ASSISTANCE 

SUBCHAPTER 26H - REIMBURSEMENT PLANS 

SECTION .0100 - REIMBURSEMENT FOR NURSING 
FACILITY SERVICES 

.0102 RATE SETTING METHODS 

(a) A rate for skilled nursing care and a rate for 
intermediate nursing care shall be determined annually for 
each facility to be effective for dates of service for a twelve 
month period beginning each October 1. Each patient shall 
be classified in one of the two categories depending on the 



services needed. Rates are derived from either filed, desk, or 
field audited cost reports for a base year period to be selected 
by the state. Rates developed from filed cost reports may be 
retroactively adjusted if there is found to exist more than a 
two percent difference between the filed direct per diem cost 
and either the desk audited or field audited direct per diem 
cost for the same reporting period. Cost reports shall be filed 
and audited under provisions set forth in 10 NCAC 26H 
.0104. The minimum requirements of the 1987 OBRA are 
met by these provisions. 

(b) Each prospective rate consists of two components: a 
direct patient care rate and an indirect rate computed and 
applied as follows: 

(1) The direct rate shall based on the Medicaid cost per 
day incurred in the following cost centers: 

(A) Nursing, 

(B) Dietary or Food Service, 

(C) Laundry and Linen, 

(D) Housekeeping, 

(E) Patient Activities, 

(F) Social Services, 

(G) Ancillary Services (includes several cost 
centers). 

(2) To compute each facility's direct rate for skilled 
care and intermediate care, the direct base year cost 
per day shall be increased by adjustment factors for 
price changes as set forth in Rule .0102(c). 

(A) A facility's direct rates caimot exceed the 
maximum rates set for skilled nursing or 
intermediate nursing care. However, the 
Division of Medical Assistance may 
negotiate direct rates that exceed the 
maximum rate for ventilator dependent 
patients. Payment of such special direct 
rates shall be made only after specific prior 
approval of the Division of Medical 
Assistance. 

(B) A standard per diem amount shall be added 
to each facility's direct rate, including 
facilities that are limited to the maximum 
rates, for the projected statewide average per 
diem costs of the salaries paid to replacement 
nurse aides for those aides in training and 
testing status and other costs deemed by 
HCFA to be facility costs related to nurse 
aide training and testing. The standard 
amount shall be based on the product of 
multiplying the average hourly wage. 
benefits, and payroll taxes of replacement 
nurse aides by the number of statewide hours 
required for training and testing of ail aides 
divided by the projected total patient days. 



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(3) If a facility did not repon any costs for either 
skilled or intermediate nursing care in the base 
year, the state average direct rate shall be assigned 
as determined in Rule .0102(d) of this Section for 
the new type of care. 

(4) The direct maximum rates shall be developed by 
ranking base-year per diem costs from the lowest to 
the highest in two separate arrays, one for skilled 
care and one for intermediate care. Each array 
shall be weighted by total patient days. The per 
diem cost at the 80th percentile in each array shall 
be selected as the base for the maximum rate. The 
base cost in each array shall be adjusted for price 
changes as set forth in Rule .0102(c) of this Section 
to determine the maximum statewide direct rates for 
skilled care and intermediate care. 

(5) Effective October 1, 1990, the direct rates shall be 
adjusted as follows: 

(A) A standard per diem amount shall be added 
to each facility's skilled and intermediate rate 
to account for the combined expected 
average additional costs for the continuing 
education of nurses' aides; the residents' 
assessments, plans of care, and charting of 
nursing hours for each patient; personal 
laundry and hygiene items; and other 
non-nursing staffing requirements. The 
standard amount is equal to the sum of: 

(i) the state average annual salary, 
benefits, and payroll taxes for one 
registered nurse position multiplied by 
the number of facilities in the state and 
divided by the state total of patient 
days; 

(ii) the total costs of personal laundry and 
hygiene items divided by the total 
patient days as determined from the 
FY 1989 cost reports of a sample of 
nursing facilities multiplied by the 
annual adjustment factor described in 
Rule .0102(c)(4)(B) of this Section; 
and 

(iii) the state average additional pharmacy 
consultant costs divided by 365 days 
and then divided by the average 
number of beds per facility. 

(B) A standard amount shall be added to the 
intermediate rate of facilities that were 
certified only for intermediate care prior to 
October 1, 1990. This amount will be added 
to account for the additional cost of 
providing eight hours of RN coverage and 24 
hours of licensed nursing coverage. The 
standard amount is equal to the state average 
hourly wage, benefits and payroll taxes for a 
registered nurse multiplied by the 16 
additional hours of required licensed nursing 



staff divided by the state average number of 
beds per nursing facility. A lower amount 
will be added to a facility only if it can be 
determined that the facility's intermediate 
rate prior to October 1, 1990 already 
includes licensed nursing coverage above 
eight hours per day. The add-on amount in 
such cases shall be equal to the exact 
additional amount required to meet the 
licensed nursing requirements. 
(C) The standard amounts in Subparagraphs 
(2)(B), (5)(A), and (5)(B) of this Rule, will 
be retained in the rates of subsequent years 
until the year that the rates are derived from 
the actual cost incurred in the cost reporting 
year ending in 1991 which shall reflect each 
facility's actual cost of complying with all 
OBRA '87 requirements. 

(6) Upon completion of any cost reporting year any 
funds received by a facility from the direct patient 
care rates which have not been spent on direct 
patient care costs as defined herein shall be repaid 
to the State. This shall be applied by comparing a 
facility's total Medicaid direct costs with the 
combined direct rate payments received for skilled 
and intermediate care. Costs in excess of a 
facility's total prospective rate payments shall not 
be reimbursable. 

(7) The indirect rate is intended to cover the following 
costs of an efficiently and economically operated 
facility: 

(A) Administrative and General, 

(B) Operation of Plant and Maintenance, 

(C) Property Ownership and Use, 

(D) Mortgage Interest. 

(8) Effective for dates of service beginning October 1, 

1984 and ending September 30, 1985 the indirect 
rates shall be fourteen dollars and sixty cents 
($14.60) for each SNF day of care and thirteen 
dollars and fifty cents (S13.50) for each ICF day of 
care. These rates represent the first step in a two 
step transition process from the different SNF and 
ICF indirect rates paid in 1983-84 and the nearly 
equal indirect rates that shall be paid in subsequent 
years under this plan as provided in this Rule. 

(9) Effective for dates of service beginning October 1 , 

1985 and annually thereafter per diem indirect rates 
shall be computed as follows: 

(A) The average indirect payment to all facilities 
in the fiscal year ending September 30, 1983 
[which is thirteen dollars and two cents 
(SI 3. 02)] shall be the base rate. 

(B) The base rate shall be adjusted for estimated 
price level changes from fiscal year 1983 
through the year in which the rates shall 
apply in accordance with the procedure set 
forth in Rule .0102(c) of this Section to 



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1342 



TEMPOHARY RULES 



establish the ICF per diem indirect rate. 
(C) The ICF per diem indirect rate shall be 
multiplied by a factor of 1.02 to establish the 
SNF per diem indirect rate. This adjustment 
shall be made to recognize the additional 
administrative expense incurred in the 
provision of SNF patient care. 

(10) Effective for dates of ser\'ice begirming October 1, 

1989. a standard per diem amount will be added to 
provide for the additional administrative costs of 
preparing for and complying with all nursing home 
reform requirements. The standard amount shall be 
based on the average annual salan,'. benefits and 
payroll ta.xes of one clerical position multiplied by 
the number of facilities in the state divided by the 
state total of patient days. 

(11) Effective for dates of service beginning October 1, 

1990, the indirect rate will be standard for skilled 
and intermediate care for all facilities and shall be 
determined by applying the 1990-91 indirect cost 
adjustment factors in Rule .0102(c) of this Section 
to the indirect rate paid for SNF during the \ear 
beginning October 1. 1989. Thereafter the indirect 
rate shall be adjusted annually by the indirect cost 
adjustment factors. 

(c) Adjustment factors for changes in the price level. The 
rate bases established in Rule .0102(b), shall be adjusted 
annually to reflect increases or decreases in prices that are 
expected to occur from the base \ear to the \ear in which the 
rate applies. The price level adjustment factors shall be 
computed using aggregate base year costs in the following 
manner: 

(1) Costs shall be separated into direct and indirect cost 
categories. 

(2) Costs in each category shall be accumulated into the 
following groups: 

(A) labor, 

(B) other, 

(C) fixed. 

(3) The relative weight of each cost group shall be 
calculated to the second decimal point b\' dividing 
the total costs of each group (labor, other, and 
fixed) b\' the total costs for each categon,' (direct 
and indirect). 

(4) Price adjustment factors for each cost group shall 
be established as follows: 

(A) Labor. The expected annual percentage 
change in direct labor costs as determined 
from a sun,ey of nursing facilities to 
determine the average hourly wages for RNs, 
LPNs, and aides paid in the current year and 
projected for the rate >ear. The percentage 
change for indirect labor costs shall be based 
on the projected average hourly wage of 
N.C. ser\'ice workers. 

(B) Other. The expected aimual change in the 
implicit price deflator for the Gross National 



Product as provided by the North Carolina 
Office of State Budget and Management. 

(C) Fixed. No adjustment shall be made for this 
category, thus making the factor zero. 

(D) The weights computed in (c)(3) of this Rule 
shall be multiplied times the percentage 
change computed in ^c)(4)(A),(B) and (C) of 
this Rule. These products shall be added 
separately for the direct and indirect 
categories. 

(E) The sum computed for each category in 
(c)(4)(D) of this Rule shall be the price level 
adjustment factor for that categor>' of rates 
(direct or indirect) for the coming fiscal 
year. 

(F) However, effective October L, 1997 for 
fiscal \ear 1998. the price level adjustment 
factors calculated in Part (c)(4)(E) of this 
Rule shall be adjusted to 2.04'^ for direct 
rates and JJ£ for indirect rates, in order to 
produce fair and reasonable reimbursement 
of efficient operators, for the rate p eriod 

b e ginning — Octobe r h 1^94 th r ough 

Se p temb er 30, 1 99 2 the fo r ecast of the N.C. 
S e ^^ ^ ic e — Wages — p e r cen t — a pp lied — to — the 
1 99 1- 9 2 In p ati e nt Hos p ital and Imcnrn-didtc 
Care Facili t y fo r the Mentally Retarded r at e s 
shall b e applied t o the — Labo i — componen t 
weight comput e d in (C)(4)(A ) of this Rule. 

rGi Fo r the r ate p e r iod beginning Octob er 1 , 

1 9 91 th r ough Se p tembe r 30, 1992 the direct 
ad j ustmen t facto r dctci ' mincd unde r (c)(4) of 
this Rule shall be a pp lied to the di r ect r at e 

adjustm e n t s dcieiiuiuLd und er (b)(2), 

(bxSx.A.) and (b)(5)(D) of this Rule. 

(d) The skilled and intermediate direct patient care rates 
for new facilities shall be established at the lower of the 
projected costs in the provider's Cenificate of Need 
application inflated to the current rate period or the average 
of industry' base year costs and adjusted for price changes as 
set fonh in Rule .0102(c) of this Section. A new facility 
receives the indirect rate in effect at the time the facility is 
enrolled in the Medicaid program. In the e\ent of a change 
of ownership, the new owner receives the same rate of 
payment assigned to the previous owner. 

(e) Each out-of-state provider shall be reimbursed at the 
lower of the appropriate .North Carolina ma.ximum rate or the 
proNider's paN'ment rate as established b_\- the State in which 
the proNider is located. For patients with special needs who 
must be placed in specialized out-of-state facilities, a payment 
rate that exceeds the Nonh Carolina maximum rate may be 
negotiated. 

(f) Specialized Ser.ice Rates: 

( 1) Head Injun.' Intensive Rehabilitation Services. 

(A) A single all-inclusi\'e prospective per diem 
rate combining both the direct and indirect 
cost components may be negotiated for 



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nursing facilities that specialize in providing 
intensive rehabilitation services for 
head-injured patients. The rate may exceed 
the maximum rate applicable to other 
Nursing Facility services. A facility must 
specialize to the extent of staffing at least 50 
percent of its Nursing Facility licensed beds 
for intensive head-injury rehabilitation 
services. The facility must also be accredited 
by the Commission for the Accreditation of 
Rehabilitation Facilities (CARF). 

(B) A facility's initial rate is negotiated based on 
budget projections of revenues, allowable 
costs, patient days, staffing and wages. A 
complete description of the facility's medical 
program must also be provided. Rates in 
subsequent years are determined by applying 
the average aimual skilled nursing care 
adjustment factors to the rate in the previous 
year, unless either the provider or the State 
requests a renegotiation of the rate within 60 
days of the rate notice. 

(C) Cost reports for this service must be filed in 
accordance with the rules in 10 NCAC 26H 
.0104, but there will be no cost settlements 
for any differences between cost and 
payments. Since it is appropriate to include 
all financial considerations in the negotiation 
of a rate, a provider shall not be eligible to 
receive separate payments for return on 
equity as defined in 10 NCAC 26H .0105. 

(2) Ventilator Services. 

(A) Ventilator services approved for nursing 
facilities providing intensive services for 
ventilator dependent patients shall be 
reimbursed at higher direct rates as described 
in Subparagraph (b)(2)(A) of this Rule. 
Ventilator services shall be paid by 
combining the enhanced direct rate with the 
nursing facility indirect rate determined 
under Subparagraph (b)(l 1) of this Rule. 

(B) A facility's initial direct rate shall be 
negotiated based on budget projections of 
revenues, allowable costs, patient days, 
staffing and wages. Rates in subsequent 
years shall be determined by applying the 
nursing facility direct adjustment factor to 
the previous 12 month cost report direct 
cost. 

(C) Cost reports and settlements for this service 
shall be in accordance with 10 NCAC 26H 
.0104 and return on equity shall be allowed 
as defined in 10 NCAC 26H .0105. 

(D) A single all-inclusive prospective per diem 
rate combining both the direct and indirect 
cost components may be negotiated for 
nursing facilities that specialize in providing 



intensive services for ventilator-dependent 

patients. The rate may exceed the maximum 

rate applicable to other Nursing Facility 

services. For ventilator services, the only 

facilities that shall be eligible for a combined 

single rate are small freestanding facilities 

with fewer than 21 Nursing Facility Beds 

and that serve only patients requiring 

ventilator services. Ventilator services 

provided in larger facilities shall be 

reimbursed at higher direct rates as described 

in Subparagraph (b)(2)(A) of this Rule. 

(g) Effective October 1, 1994 the bloodbome pathogen 

cost required under Title 29, Part 1910, Subpart 2, Section 

1910.0130 of the Code of Federal Regulations shall be 

included in the nursing facility's direct cost reimbursement. 

The initial per diem amount shall be set at the lower of the 

actual or eightieth percentile of bloodbome pathogen costs 

incurred in fiscal year 1993. 

(h) Religious Dietary Considerations. 

(1) A standard amount may be added to a nursing 
facility's skilled and intermediate care rates, that 
may exceed the maximum rates determined under 
Paragraph (b) of this Rule, for special dietary need 
for religious reasons. 

(2) Facilities must apply to receive this special payment 
consideration. In applying, facilities must 
document the reasons for special dietary 
consideration for religious reasons and must submit 
documentation for the increased dietary costs for 
religious reasons. Facilities must apply for this 
special benefit each time rates are determined from 
a new data base. Fifty or more percent of the 
patients in total licensed beds must require religious 
dietary consideration in order for the facility to 
qualify for this special dietary rate add-on. 

(3) The special dietary add-on rate may not exceed 
more than a 30 percent increase in the average 
skilled and intermediate care dietary rates 
calculated for the 80th percentile of facilities 
determined under Subparagraph (b)(4) of this Rule 
and adjusted for aimual inflation factors. This 
maximum add-on will be adjusted by the direct rate 
inflation factor each year until a new data base is 
used to determine rates. 

(4) This special dietary add-on rate shall become part 
of the facility's direct rates to be reconciled in the 
annual cost report settlement. 

(i) Effective October 1, 1994 nursing facilities shall be 
responsible for providing medically necessary transportation 
for residents, unless ambulance transportation is needed. 
Reimbursement shall be included in the nursing facility's 
direct cost. The initial amount shall be based on a per diem 
fee derived from estimated industry cost for transportation 
and associated salaries. 

(j) This reimbursement limitation shall become effective in 
accordance with the provisions of G.S. 108A-55(c). 



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History Note: Filed as a Temporal^ Amendment Eff. July 1. 

1992 for a Period of 180 Days to Expire on December 31, 

1992; 

Filed as a Temporary Amendment Eff. October 1, 1991 for a 

Period of 180 Days to Expire on March 31, 1992; 

Filed as a Temporary Amendment Eff. October 1, 1984 for a 

Period of 120 Days to Expire on January 28, 1985; 

Authority G.S. 108A-25(b); 108A-54; 108A-55; 29 C.F.R. 

1910, Subpart Z; 42 C.F.R. 447, Subpart C; S. L. 1991, c. 

689, 5. 95; 

Eff. January 1, 1978; 

Amended Eff. May 1. 1995; February 1, 1993; January 1. 

1993; April 1. 1992; 

Temporary Amendment Eff. January- 22. 1998. 

SECTION .0200 - HOSPITAL INPATIENT 
REIMBURSEMENT PLAN 

. 02 11 DRG RATE SETTING METHODOLOGY 

(a) Diagnosis Related Groups is a system of classification 
for hospital inpatient services. For each hospital admission, a 
single DRG category shall be assigned based on the patient's 
diagnoses, age, procedures performed, length of stay, and 
discharge status. For claims with dates of services prior to 
January 1, 1995 payments shall be based on the 
reimbursement per diem in effect prior to January 1, 1995. 
However, for claims related to services where the admission 
was prior to January 1, 1995 and the discharge was after 
December 31, 1994, then the greater of the total per diem for 
services rendered prior to January 1, 1995, or the appropriate 
DRG payment shall be made. 

(b) The Division of Medical Assistance (Division) shall 
use the DRG assignment logic of the Medicare Grouper to 
assign individual claims to a DRG category. Medicare 
revises the Grouper each year in October. The Division shall 
install the most recent version of the Medicare Grouper 
implemented by Medicare. 

The initial DRG in Version 12 of the Medicare Grouper, 
related to the care of premature neonates and other newborns 
numbered 385 through 391, shall be replaced with the 
following classifications: 

385 Neonate, died or transferred, length of stay less than 3 
days 

801 Binhweight less than 1,000 grams 

802 Binhweight 1,000 - 1,499 grams 

803 Binhweight 1,500 - 1,999 grams 

804 Birthweight > =2,000 grams, with Respiratory 
Distress Syndrome 

805 Binhweight > = 2,000 grams, premature with 
major problems 

810 Neonate with low birthweight diagnosis, age 
greater than 28 days at admission 

389 Birthweight > = 2,000 grams, full term with major 
problems 

390 Binhweight > = 2,000 grams, full term with other 
problems or premature without major problems 

391 Binhweight > = 2,000 grams, full term without 



complicating diagnoses 

(c) DRG relative weights are a measure of the relative 
resources required in the treatment of the average case falling 
within a particular DRG category. The average DRG weight 
for a group of services, such as all discharges from a 
particular hospital or all North Carolina Medicaid discharges, 
is known as the Case Mix Index (CMI) for that group. 

(1) The Division shall establish relative weights for 
each utilized DRG based on a recent data set of 
historical claims submitted for Medicaid recipients. 
Charges on each historical claim shall be converted 
to estimated costs by applying the cost conversion 
factors from each hospital's submitted Medicare 
cost report to each billed line item. Cost estimates 
are standardized by removing direct and indirect 
medical education costs at the appropriate rates for 
each hospital. 

(2) Relative weights shall be calculated as the ratio of 
the average cost in each DRG to the overall average 
cost for all DRGs combined. Prior to calculating 
these averages, low statistical outlier claims shall 
be removed from the data set, and the costs of 
claims identified as high statistical outliers shall be 
capped at the statistical outlier threshold. The 
Division of Medical Assistance shall employ 
criteria for the identification of statistical outliers 
which are expected to result in the highest number 
of DRGs with statistically stable weights. 

(3) The Division of Medical Assistance shall employ a 
statistically valid methodology to determine 
whether there are a sufficient number of recent 
claims to establish a stable weight for each DRG. 
For DRGs lacking sufficient volume, the Division 
shall set relative weights using DRG weights 
generated from the North Carolina Medical Data 
Base Commission's discharge abstract file covering 
all inpatient services delivered in North Carolina 
hospitals. For DRGs in which there are an 
insufficient number of discharges in the Medical 
Data Base Commission data set, the Division sets 
relative weights based upon the published DRG 
weights for the Medicare program. 

(4) Relative weights shall be recalculated whenever a 
new version of the DRG Grouper is installed by the 
Division of Medical Assistance. When relative 
weights are recalculated, the overall average CMI 
will be kept constant. 

(d) The Division of Medical Assistance shall establish a 
unit value for each hospital which represents the DRG 
payment rate for a DRG with a relative weight of one. This 
rate is established as follows: 

(1) Using the methodology described in Paragraph (c) 
of this Rule, the Division shall estimate the cost 
less direct and indirect medical education expense 
on claims for discharges occurring during calendar 
year 1993, using cost reports for hospital fiscal 
years ending during that period or the most recent 



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^ 



) 



> 



cost report available. All cost estimates are 
adjusted to a common 1994 fiscal year and inflated 
to the 1995 rate year. The average cost per 
discharge for each provider is calculated. 

(2) Using the DRG weights effective on January 1, 
1995, a CMI is calculated for each hospital for the 
same population of claims used to develop the cost 
per discharge amount in Subparagraph (d)( 1 ) of this 
Rule. Each hospital's average cost per discharge is 
divided by its CMI to get the cost per discharge for 
a service with a DRG weight of one. 

(3) The amount calculated in Subparagraph (d)(2) of 
this Rule is reduced by 7.2% to account for outlier 
payments. 

(4) Hospitals are ranked in order of increasing CMI 
adjusted cost per discharge. The DRG Unit Value 
for hospitals at or below the 45th percentile in this 
ranking is set using 75% of the hospital's own 
adjusted cost per discharge and 25 % of the cost per 
discharge of the hospital at the 45th percentile. 
The DRG Unit Value for hospitals ranked above 
the 45th percentile is set at the cost per discharge of 
the 45th percentile hospital. The DRG unit value 
for new hospitals and hospitals that did not have a 
Medicaid discharge in the base year is set at the 
cost per discharge of the 45th percentile hospital. 

(5) The hospital unit values calculated in Subparagraph 
(d)(4) of this Rule shall be updated annually by the 
lower of the National Hospital Market Basket Index 
as published by Medicare and applied to the most 
recent actual and projected cost data available from 
the North Carolina Office of State Budget and 
Management or the Medicare approved Inpatient 
Prospective Payment update factor. Managemen t . 

(e) Reimbursement for capital expense is included in the 
DRG hospital rate described in Paragraph (d) of this Rule. 

(f) Hospitals operating Medicare approved graduate 
medical education programs shall receive a DRG payment 
rate adjustment which reflects the reasonable direct and 
indirect costs of operating those programs. 

(1) The Division defines reasonable direct medical 
education costs consistent with the base year cost 
per resident methodology described in 42 CFR 
413.86. The ratio of the aggregate approved 
amount for graduate medical education costs at 42 
CFR 413.86 (d) (1) to total reimbursable costs (per 
Medicare principles) is the North Carolina 
Medicaid direct medical education factor. The 
direct medical education factor is based on 
information supplied in the 1993 cost reports and 
the factor will be updated annually as soon as 
practicable after July 1 based on the latest cost 
reports filed prior to July 1 . 

(2) The North Carolina Medicaid indirect medical 
education factor is computed by the following 
formula: 



1.89(( 1 + R) 



1) 



where R equals the number of approved full time 

equivalent residents divided by the number of 

staffed beds, not including nursery beds. The 

indirect medical education factor will be updated 

annually as soon as practicable after July 1 based 

on statistics contained in the latest cost reports filed 

prior to July 1 . 

(3) Hospitals operating an approved graduate medical 

education program shall have their DRG unit values 

increased by the sum of the direct and indirect 

medical education factors. 

(g) Cost outlier payments are an additional payment made 

at the time a claim is processed for exceptionally costly 

services. These payments shall be subject to retrospective 

review by the Division of Medical Assistance, on a 

case-by-case basis. Cost Outlier payments may be reduced if 

and to the extent that the preponderance of evidence on 

review supports a determination that the associated cost either 

exceeded the costs which must be incurred by efficiently and 

economically operated hospitals or was for services that were 

not medically necessary or for services not covered by the 

North Carolina Medical Assistance program. 

(1) A cost outlier threshold shall be established for 
each DRG at the time DRG relative weights are 
calculated, using the same information used to 
establish those relative weights. The cost threshold 
is the greater of twenty-five thousand dollars 
($25,000) or mean cost for the DRG plus 1.96 
standard deviations. 

(2) Charges for non-covered services and services not 
reimbursed under the inpatient DRG methodology 
(such as professional fees) shall be deducted from 
total billed charges. The remaining billed charges 
are converted to cost using a hospital specific cost 
to charge ratio. The cost to charge ratio excludes 
medical education costs. 

(3) If the net cost for the claim exceeds the cost outlier 
threshold, a cost outlier payment is made at 75% of 
the costs above the threshold. 

(h) Day outlier payments are an additional payment made 
for exceptionally long lengths of stay on services provided to 
children under six at disproportionate share hospitals and 
children under age one at non-disproportionate share 
hospitals. These payments shall be subject to retrospective 
review by the Division of Medical Assistance, on a 
case-by-case basis. Day outlier payments may be reduced if 
and to the extent that the preponderance of evidence on 
review supports a determination that the associated cost either 
exceeded the costs which must be incurred by efficiently and 
economically operated hospitals or was for services that were 
not medically necessary or for services not covered by the 
North Carolina Medical Assistance program. 

(1) A day outlier threshold shall be established for each 
DRG at the time DRG relative weights are 
calculated, using the same information used to 
establish the relative weights. The day outlier 
threshold is the greater of 30 days or the 



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TEMPORARY RULES 



arithmetical average length of stay for the DRG 
plus 1.50 standard deviations. 
(2) A da)' outlier per diem payment may be made for 
covered days in excess of the day outlier threshold 
at 157c of the hospital's payment rale for the DRG 
rate divided by the DRG average length stay, 
(i) Services which qualify for both cost outlier and day 
outlier payments under this rule shall receive the greater of 
the cost outlier or day outlier payment. 

History Note: Auihorir\- G.S. 108A-25(b): 108A-54; 

108A-55: 42 C.F.R. 447. Subpart C: 

Eff. March 1. 1995: 

Temporar,' Amendment Eff. Januan,- 22. 1998. 

SECTION .0400 - PROVIDER FEE SCHEDULES 

.0401 PHYSICIAN'S FEE SCHEDULE 

(a) Effective January 1, 1995, (see Paragraph (b) of this 
Rule) physicians' services whether furnished in the office, the 
patient's home, a hospital, a nursing facility or elsewhere will 
be reimbursed based on the North Carolina Medicaid Fee 
Schedule, except for payments to the various Medical Faculty 
Practice Plans of the University of North Carolina-Chapel 
Hill and East Carolina University which will be reimbursed at 
cost and cost settled at year end. The North Carolina 
Medicaid Fee Schedule is based on the Medicare Fee 
Schedule Resource Based Relative Value System (RBRVS), in 
effect in fiscal year 1993 (as adopted by Medicare at 56 F.R. 
59501 (November 25, 1991, effective January 1, 1992, 
applicable to services furnished beginning January 1, 1992), 
but with the following clarifications and modifications: 

(1) A ma,\imum fee is established for each ser\'ice and 
is applicable to all specialties and settings in which 
the service is rendered. Payment is equal to the 
lower of the maximum fee or the provider's 
customary charge to the general public for the 
particular service rendered. 

(2) Fees are established on a statewide basis using the 
Medicare Geographic Practice Cost Indices for the 
Nonh Carolina. 

(3) There will be no transition period in applying the 
Medicaid fees whereas Medicare has a five year 
phase-in period. 

(4) Annual Changes changes in the Medicaid payments 
will be applied each January 1 and fee increases 
will be applied based on the forecasted Gross 
National Product (GNP) Implicit Price Deflator. 
Said annual changes in the Medicaid payments shall 
not exceed the percentage increase granted by the 
North Carolina General Assembly. 

(5) Fees for ser\'ices deemed to be associated with 
adequacy of access to health care services may be 
increased based on administrative review. The 
service must be essential to the health needs of the 
Medicaid recipients, no other comparable treatment 
available and a fee adjustment must be necessarv to 



maintain physician participation at a level adequate 
to meet the needs of Medicaid recipients. A fee 
may also be decreased based on administrative 
review if it is determined that the fee may exceed 
the Medicare allowable amount for the same or 
similar services, or if the fee is higher than 
Medicaid fees for similar services, or if tlie fee is 
too high inrelation to the skills, time, and other 
resources required to provide the particular service. 
(6) Fees for new services are established based on this 
Rule, utilizing the most recent RBRVS, if 
applicable. If there is no relative value unit (RVU) 
available from Medicare, fees will be established 
based on the fees for similar services. If there is no 
RVU or similar service, the fee will be set at 75 
percent of the provider's customary charge to the 
general public, 
(b) This reimbursement limitation shall become effective 
in accordance with the provisions of G.S. 108A-55(c). 

History- Note: Authonn G.S. 108A-25(b); S.L. 1985. c. 

479, s. 86; 

Eff. October 1. 1982: 

Amended Eff. July 1. 1995: January 4, 1993: June 1, 1990; 

December 1. 1988; November 1. 1988; 

Temporary Amendment Eff. January 22. 1998. 

******************** 

Rule-making Agency: Social Senices Commission 

Rule Citation: 10 NCAC 30 .0207 

Effective Date: January 1. 1998 

Findings Reviewed and Approved by: Julian Mann, III 

Authority for the rule-making: G.S. 108A-51; 143B-153; 
S.L. 1997-443 

Reason for Proposed Action: S.L. 1997-443. Part XII. 
Welfare Reform Initiatives and Confonning Changes, 
redesigned North Carolina 's welfare system. The legislation 
gave the State additional fle.xibiliry in designing a welfare 
system that provides short-term assistance that facilitates the 
movement of eligible families to self-sufficiency. Also. P.L. 
104-1993, gave states an option on how they issued food 
stamp benefits to applicants who applied after the 15th of the 
month. Prior to this option, food stamp benefits for this 
specific category of applicants were combined. This meant 
that the applicant received food stamps for the month in 
which they applied as well as their allotment for the next 
month in one combined issuance. 10 NCAC 30 .0207 is 
being proposed for temporary amendment to simplify the 
delivery of food stamp benefits to eligible families. Families 
will receive a separate allotment for each month of eligibility: 
thereby enabling them to plan and budget their food 



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purchases with the knowledge of their future receipt of food 
stamp benefits. 

Comment Procedures: Anyone wishing to comment should 
contact Sharnese Ransome. APA Coordinator, Social Senices 
Commission, NC Division of Social Senices, 325 N. 
Salisbury St., Raleigh, NC 27603, phone 919-733-3055. 

CHAPTER 30 - FOOD ASSISTANCE 

SECTION .0200 - MANUAL 

.0207 COUPON ISSUANCE 

(a) The methods authorized for coupon issuance are on- 
line terminal issuance, authorization to participation card, 
direct mail issuance. 

(b) The county departments may use certified mail where 
neighborhoods or individual households are experiencing loss 
problems. 

(c) Allotments shall be issued for each eligible month. 

History Note: Authority G.S. 108A-51; 143B-153: P.L. 

104-193; 7 C.F.R. 274.2; 7 C.F.R. 274.3; U.S.C. 2011- 

2027; 

Eff. March 1, 1979; 

Amended Eff. February 1, 1986; 

Temporary' Amendment Eff. January 1^ 1998. 



TITLE 15 A - DEPARTMENT OF ENVIRONMENT 
AND NATURAL RESOURCES 



Rule-making 

Commission 



Agency: Environmental Management 



Rule Citation: 15A NCAC 2B .0233 - .0234 

Effective Date: January 22, 1998 

Findings Reviewed and Approved by: Beecher R. Gray 

Authority for the rule-making: G.S. 143-214.1; 143- 
214.7; 143-215; 143-215.1; 143-215. 3(a)(1); Chapter 572, 
1995 Session Laws; 143B-282(d) 

Reason for Proposed Action: Rule .0233 - The Neuse River 
estuary has been plagued by algal blooms and fish kills and 
the North Carolina General Assembly has asked that action 
be taken to reduce nitrogen input into the river system. 
House Bill 1339 (1995 [Regular Session, 1996] Session, 
Chapter 572) required the Environmental Management 
Commission (Commission) to develop a plan to achieve a 
30% reduction in nitrogen loading to the Neuse River estuary 
by the year 2001. One of the most ecologically critical 
components of the plan is the maintenance of vegetated areas 
along streams and surface waters in the Neuse River basin. 
The purpose of this rule making is to require maintenance 



and protection of riparian areas with existing forest 
vegetation along surface waters in the Neuse River Basin 
(intermittent steams, perennial streams, lakes, ponds and 
estuaries) as indicated on the most recent versions of the 
United States Geological Sun'ey 1:24,000 scale topographic 
maps or other site-specific evidence. Protection of these 
streamside areas is a vital component of an overall plan to 
remove nitrogen from adjacent land uses before the nitrogen 
enters surface waters of the Neuse River. This Rule was a 
portion of the plan previously published September 15, 1997. 
The EMC found that minor changes were needed to this rule 
as a result of public comment. Rule .0234 - The 
Environmental Management Commission adopted this 
temporary rule in order to coordinate the nitrogen reduction 
schedule codified in House Bill 1339 (1995 [Regular Session, 
1996] Session, Chapter 572) and the waste^vater permitting 
process. The Division of Water Quality is required to reissue 
five-year discharge permits in the Neuse basin during Spring 
1998. If dischargers do not receive permit limits appropriate 
to achieve a 30 percent nitrogen reduction this spring, then 
they will not meet the reduction schedule codified in House 
Bill 1339. The EMC found that it was necessary to enact this 
rule in order to coordinate the rule's schedule with the 
wastewater permitting process. 

Comment Procedures: Comments were previously accepted 
on these rules. Notice of Rule-Making Proceedings for the 
original rules was published on April 15, 1996. The Rules 
became effective as temporary rules on July 22, 1997. Notice 
of Text was published on August 15, 1996, republished on 
October 15, 1996 and republished again on September 15, 
1997. A second round of public hearings were held on 
October 7, 1997. 

CHAPTER 2 - ENVIRONMENTAL MANAGEMENT 

SUBCHAPTER 2B - SURFACE WATER AND 
WETLAND STANDARDS 

SECTION .0200 - CLASSinCATIONS AND WATER 

QUALITY STANDARDS APPLICABLE 

TO SURFACE WATERS AND WETLANDS OF NORTH 

CAROLINA 

.0233 NEUSE RIVER BASIN: NUTRIENT 

SENSITIVE WATERS MANAGEMENT 
STRATEGY: PROTECTION AND 
MAINTENANCE OF RIPARIAN AREAS 
WITH EXISTING FOREST VEGETATION 
The following is the management strategy for maintaining 

and protecting existing riparian areas in the Neuse River 

Basin: 

(I) Existing r i p arian Riparian areas shall be protected 
and maintained in accordance with this Rule Sttb 
Itcnis (3)(a)-(c) on all sides of surface waters in the 
Neuse River Basin (intermittent streams, perennial 
streams, lakes, ponds, and estuaries) as indicated 



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on the most recent versions of United States 
Geological Survey 1:24,000 scale (7.5 minute 
quadrangle) topographic maps or other site-specific 
evidence. This Rule only applies to riparian areas 
where forest vegetation is established in Zone 1 (as 
described in Sub-Item 3(a)) as of June 12. 1 99 7 
July 22. 1997. Forest vegetation, as defined in 
15A NCAC 2B .0202. of anx width in Zone i must 
be protected and maintained in accordance with this 
Rule. This Rule does not establish new buffers in 
riparian areas. Exceptions to the requirements of 
this Rule for existing riparian areas are described in 
Sub-Items (-H(2) (a-h). Maintenance of the riparian 
areas should be such that, to the maximum extent 
possible, sheet flow of surface water is achieved. 
Any activities that would re sult in wat er quality 
standard violations o r that disru p t the st r uctu r al o r 
functional — int e g r ity — of — tht — r iparian — area — are 
pr ohibited. This Rule specifies requirements that 
shall be implemented in riparian areas to ensure 
that the pollutant removal functions of tlie riparian 
area are protected and maintained. 
(2) The following waterbodies and land uses are 
exempt from the riparian area protection 
requirements: 

(a) Ditches and manmade conveyances other 
than modified natural streams; 

(b) Areas mapped as intermittent streams, 
pereimial streams, lakes, ponds, or estuaries 
on the most recent versions of United States 
Geological Survey 1:24,000 scale (7.5 
minute quadrangle) topographic maps where 
no perennial waierbody . or intermittent 
waterbody. or lake, pond or estuary actually 
exists on the ground; 

(c) Ponds and lakes created for animal watering, 
irrigation, or other agricultural uses that are 
not part of a natural drainage way that is 
classified in accordance with 15A NCAC 2B 
.0100; 

(tt) Where — a pp lication — of — this — Rttk — would 

p revent all p r os pe ctive uses of a lot p la t t e d 

and r eco r ded p r io r to the effective date of 

this Rule, a va r iance may be g r anted by th e 

environmen t al Manag e m e nt Commission: 

fc){d] New development in the r i p arian area shall 

be — limited — to — wate r Water dependent 

structures as defined in 15 A NCAC 2B 

.0202. .0202. provided that they are 7*my 

such st r uctu r es shalU be located, designed, 

constructed and maintained to provide 

maximum nutrient removal, to have the least 

adverse effects on aquatic life and habitat and 

to protect water quality; 

ff) — Roads, b r idges, stormwatcr management facilities, 

po nds, — and u t ilities may be allowed wh er e no pr atical 

al t e r nativ e — exists. Th e s e — st r uctures — shaH — be — located. 



designed, — constiuct e d, — and — maintained — tts — have — minimal 
dis t urbanc e , — to — pr ovide — maximum nutrient — r emoval — and 
erosion pr otec t ion, to have the least adverse effects on aquatic 
life and habitat, and to pr otect water quality to the maximum 
e xt e n t pr act i cal th r ough the use of b e st management practices. 

(e) The following uses may be allowed where no 
practical alternative exists. A lack of 
practical alternatives may be shown by 
demonstrating that, considering the potential 
for a reduction in size, configuration or 
density of tlie proposed activity and all 
alternative designs, the basic project purpose 
cannot be practically accomplished in a 
manner which would avoid or result in less 
adverse impact to surface waters. Also, 
these structures shall be located, designed- 
constructed, and maintained to have minimal 
disturbance, to provide maximum nutrient 
removal and erosion protection, to have the 
least adverse effects on aquatic life and 
habitat, and to protect water quality to the 
maximum extent practical through the use of 
best management practices. 

tii Road crossings, railroad crossings- 
bridges, airport facilities, and utility 
crossings may be allowed if conditions 
specified in Subitem (2)(e) of this 
Rule are met. 

(ii) Stormwatcr management facilities and 
ponds- and utility construction and 
maintenance corridors for utilities 
such as water, sewer or gas, may be 
allowed in Zone 2 of the riparian area 
as long as the conditions specified in 
2(e) of this Rule are met and they are 
located at least 30 feet from the top of 
bank or mean high water line. 
Additional requirements for utility 
construction and maintenanc e 
corridors are listed in Subitem (2)(T) 
of this Rule. 

(f) A corridor for the construction and 
maintenance of utility lines, such as water, 
sewer or gas, (including access roads and 
stockpiling of materials) may run parallel to 
the stream and may be located within Zone 2 
of tfie riparian area, as long as no practical 
alternative exist s and they are located at least 
30 feet from the top of bank or mean high 
water line and best management practices are 
installed to minimize runoff and maximize 
water quality protection to the maximum 
extent practicable. Permanent, maintained 
access corridors shall be restricted to the 
minimum width practicable and shall not 
exceed 10 feet in width except at manhole 
locations. A iO feet by 10 feet perpendicular 



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I 



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vehicle turnaround is allowed provided thev 
are spaced at least 500 feet apart along the 
riparian area. 
(g) Stream restoration projects, scientific 
studies, stream gauging, water wells, passive 
recreation facilities such as boardwalks, 
trails, pathways, historic preservation and 
archaeological activities are all o wed ; — and 
allowed provided that they are located in 
Zone 2 and are at least 30 feet from the tog 
of bank or mean high water line and are 
designed, constructed and maintained to 
provide the maximum nutrient removal and 
erosion protection, to have the least adverse 
effects on aquatic life and habitat, and to 
protect water quality to the maximum extent 
practical through the use of best management 
practices. Activities that must cross the 
stream or be located within Zone i are 
allowed as long as all other requirements of 
this Item are met. 
(h) Stream crossings associated with timber 
harvesting are allowed if performed in 
accordance with the Forest Practices 
Guidelines Related to Water Quality (15A 
NCAC IJ .0201-.0209). 

t2) If a l o cal g o vernmen t has been issued a Munici p al 

Se p arate S t oimwatci ' Sewer System permit or has 
been delega t ed to im p lem e n t a l o cal stuimwatei 
pr o gram, t hen the l o cal g o ve r nmen t shall ensu r e 
t ha t t he r i p arian ar e as t o be prot ec t ed are, as a 
standard pr ac t ice, rec o rded o n p lats as easemen t s. 
(3) The protected riparian area shall have two zones as 
follows: 

(a) Zone 1 is intended to be an undisturbed area 
fif forest vegetation. Any forest vegetation. 
as defined in Rule .0202 of the Section, in 
Zone i as of Mx 22, 1997 shall be 
maintained and protected in accordance with 
this Rule. 

£i} Location of Zone U Zone 1 begins at 
the cen t erlinc o f the channel top of 
bank for intermittent streams and 
pereimial streams wi t hout t ributaries 
and extends landward a distance of 30 
feet on all sides of the waterbody, 
measured horizontally on a line 
perpendicular to the waterbody. For 
all other waterbodies. Zone 1 begins 
at the u pp e r edge of the ac t ive channel 
of th e su r face wate r body (bank full 
flow) channel o r the tog of bank or 
mean high water line and extends 
landward a distance of 30 feet, 
measured horizontally on a line 
perpendicular to the waterbody. 
F o res t vegeta t ion of atiy width tha t 



exists in Zone 1 on the effec t iv e dat e 
o f this Rule mus t be presciTcd and 
main t ained in acco r dance with Sub 

Items — (I)-(v). The a pp lication of 

fer t ilizer in Zone 1 is pr ohibit e d. 
(ii) The following practices and activities 
are allowed in Zone 1 : 
fr>(A> Natural regeneration of forest 
vegetation is — allowed and 
planting vegetation to enhance 
the riparian area rortc — is 
allowed if disturbance is 
minimized. — Any minimized, 
provided that any plantings 
should primarily consist of 
locally native trees and shrubs; 
fifXB) Selec t ive r emoval of individual 
high — value — trees — is — allowed 
whe r e wate r quali t y values air 
not — c o m pr omised. Selective 
cutting of individual trees of 
hi gh value in the outer 20 feet 
of Zone L, provided that the 
basal area (measured as 12-inch 
diameter at breast height) 
remains at or above 0.52 square 
feet per 15 running feet of the 
outer 20 feet of Zone L, as 
measured along the bank of the 
stream or waterbody . Limited 
mechanized equipment is 
allowed in this area; 
im) £C} Horticulture or silvicultural 
practices may — be — ttscd to 
maintain the health of 
individual trees; 
fiv)£D} Removal of lindividual trees 
may be removed which are in 
danger of causing damage to 
dwellings, other s tr uc t u r es, 
structures or the stream 
channel; and 
fv)£E} Removal of dead trees and 
other Othe r timber cutting 
techniques necessary to prevent 
extensive pest or disease 
infestation if recommended by 
the Director. Division of Forest 
Resources and approved by the 
Departmen t Director. Division 
of Water Quality: and may be 
unde r taken — if — necessary — to 
pr even t — e xt e nsiv e — pest — or 
disease infes t a t ion. 
(F) Ongoing agricultural operations 
provided that existing forest 
vegetation is protected and 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1350 



TEMPORARY RULES 



requirements in Rules .0236 
and .0238 of this Section are 
followed, 
(iii) The following practices are not 
allowed in Zone Jj. 

(A) Land-disturbing activities and 
placement of fiU and other 
materials, other than those 
allowed in Items (2) and 
(3)(a)(ii) of this Rule, that 
would disturb forest vegetation. 
as defined in Rule .0200 of this 
Section: 

(B) New development, except as 
provided in Sub-Items (2)(d). 
(2)(e) and (2l(f) of this Rule: 

(C) New on-site sanitary sewage 
systems which use ground 
adsorption: 

(D) The application of fertilizer: 
and 

(E) Any activity that threatens the 
health and function of the 
vegetation including, but not 
limited to. application of 
chemicals in amounts exceeding 
t h e manufacturer's 
recommended rate . 
uncontrolled sediment sources 
on adjacent lands, and the 
creation of any areas with bare 
soil. 

(b) Vegetation in Zone 2 shall consist of a dense 
ground cover composed of herbaceous or woody 
sf)ecies which provides for diffusion and infiltration 
of runoff and filtering of pollutants. 

tb)Lii Location of Zone ll Zone 2 begins at 

the outer edge of Zone 1 and extends 

landward a minimum of 20 feet as 

measured horizontally on a line 

perpendicular to the waterbody. The 

combined minimum width of Zones 1 

and 2 shall be 50 feet on all sides of 

the waterbody. Vegetation in Zone 2 

shall consist of a dense g r ound cove r 

com p os e d of h er bac e ous o r woody 

s p ecies which p rovid e s fo r diffusion 

and infilt r ation of mnoff and filte r ing 

of p ollutants. 

(ii) The following practices and activities 

are allowed in Zone 2 in addition to 

those allowed in Zone 1 : 

(A) Removal of g r ass cli pp ings or 

Periodic mowing and removal 

of plant products such as 

timber, nuts, and fruit is 

allowed on a periodic and 



regular basis provided the 
intended purpose of the riparian 
area is not compromised by 
harvesting, disturbance, or loss 
of forest or herbaceous ground 
cover. 

(B) Forest vegetation in Zone 2 
may be managed to minimize 
shading on adjacent land 
outside the riparian area if the 
water quality function of the 
riparian area is not 
compromised. 

(C) On-going agricultural 
operations provided that 
requirements of Rules .0236 
and .0238 of this Section are 
followed. 

(iii) The following practices and activities 
are not allowed in Zone 2: 
(A) Land disturbing activities and 
placement of fill and other 
materials, other than those 
allowed in Items (2) and 
(3)(b)(ii) of this Rule: 
ff>(B) New development, except as 
provided in Sub-Items (2)(e) 
and (2)(f) of tins Rule: 
pei ' irianent st r uc t u r es 
fifXC) New on-site sanitary sewage 
systems which use ground 
adso rp tions: adsorption: 

(D) The application of fertilizer: 
and 

fhrXE) Any activity that threatens the 
health and function of the 
vegetation including, but not 
limited to. application of 
chemicals in amounts exceeding 
the manufacturer' s 

recommended rate . 

uncontrolled sediment sources 
on adjacent lands, and the 
creation of any areas with bare 
soil. Activities — that — would 
r esult in wate r quality standards 

violations or dis r u p t the 

st r uctu r al o r functional integ r ity 

of — the — ri p arian — area — arc 

pr ohibited. 

(c) Timber removal and skidding of trees shall be 

directed away from the water course or water body. 

Skidding shall be done in a manner to prevent the 

creation of ephemeral channels perpendicular to the 

water body. Any tree removal must be performed 

in a manner that does not compromise the intended 

purpose of the riparian area and is in accordance 



1351 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



TEMPORARY RULES 



^ 



> 



with the Forest Practices Guidelines Related to 
Water Quality (15A NCAC IJ .0201-.0209). 

(d) Maintenance of sheet flow in Zones 1 and 2 is 
r e qui r ed, required in accordance with this Item. 

(i) Sheet flow must be maintained to the 
maximum extent practical through dispersing 
concentrated flow and/or re-establishment of 
vegetation to maintain the effectiveness of 
the riparian area. 
(ii) Concentrated runoff from new ditches or 
manmade convevances must be dispersed 
into sheet flow before the runoff enters Zone 
2 of the riparian area. Existing ditches and 
manmade convayances. as specified in Sub- 
Item (2)(a) of this Rule, are exempt from this 
requirement; however, care should be taken 
to minimize pollutant loading through these 
existing ditches and manmade convevances 
from fertilizer application or erosion, 
(iii) Periodic corrective action to restore sheet 
flow must should be taken by the landowner 
if necessary to impede the formation of 
erosion gullies which allow concentrated 
flow to bypass treatment in the riparian area. 

(e) Periodic maintenance of modified natural streams 
such as canals is allowed provided that disturbance 
is minimized and the structure and function of the 
riparian area is not compromised. A grassed 
travelway is allowed on one side of the waterbody 
when alternative forms of maintenance access are 
not practical. The width and specifications of the 
travelway shall be only that needed for equipment 
access and operation. The travelway sh o uld shall 
be located to maximize stream shading. 

(4) If a local government has been issued a Municipal 
Separate Stormwater Sewer System permit or has 
been delegated to implement a local stormwater 
program, then the local government shall ensure 
that the riparian areas to be protected are, as a 
standard practice, recorded on new or modified 
plats. 
W(5) Where the standards and management requirements 
for riparian areas are in conflict with other laws, 
regulations, and permits regarding streams, steep 
slopes, erodible soils, wetlands, floodplains, forest 
harvesting, surface mining, land disturbance 
activities, development in Coastal Area 
Management Act Areas of Environmental Concern, 
or other environmental protection areas, the more 
protective shall a pp ly s o long as they are in effec t . 
apply. 

(6) Where application of this Rule would prevent all 
reasonable uses of a lot platted and recorded prior 
to the effective date of this Rule, a variance may be 
granted by tlie Environmental Management 
Commission if it finds that: 
(a) practical difficulties or unnecessary hardships 



would result in strict application of the Rule: 

(b) such difficulties or hardships result from 
conditions which are peculiar to the property 
involved: and 

(c) the general purpose and intent of the Rule 
would be preserved, water quality would be 
protected and substantial justice would be 
done if the variance were granted. 

History Note: Authority G.S. 143-214.1; 143-214.7; 143- 
215.3(a)(1); S.L. 1995, c. 572; 
Temporary Adoption Eff. July 22, 1997; 
Temporary Adoption Eff. January 22. 1998. 

.0234 >fEUSE RIVER BASIN - NUTRIENT 

SENSITIVE WATERS MANAGEMENT 
STRATEGY: APPLICATION DEADLINE 
FOR MEMBERSfflP IN THE ASSOCIATION 
OPTION FOR WASTEWATER 
DISCHARGERS 
The membership of the Association shall be established no 
later than March L, 1998. All facilities who apply to the 
Division of Water Quality for membership in the Association 
prior to March L, 1998 shall be accepted. Thereafter, 
additions of facilities, which are existing as of the effective 
date of this Rule, to tjie membership in the Association may 
be considered every five years. 

History Note: Authority G.S. 143-214.1; 143-215; 143- 
215.1; 143-215. 3(a)(1); S.L. 1995, c. 572; 
Temporary Adoption Eff. January 22. 1998. 

Rule-making Agency: Commission for Health Services 

Rule Citation: 15ANCAC 18A .0425, .0432, .2612 

Effective Date: February 1, 1998 

Findings Reviewed and Approved by: Beecher R. Gray 

Authority for the rule-making: G.S. 130A-230; 130A-248 

Reason for Proposed Action: A recent death of a North 
Carolina citizen from Vibrio vulnificus infection (due to 
eating raw oysters) has prompted the need to move current 
discussions of this issue forward into a temporary rule. 
Vibrio vulnificus is a contaminant of shellfish, particularly 
those taken from Gulf of Mexico waters, and causes a 
frequently fatal illness in susceptible individuals who eat raw 
or inadequately cooked shellfish harvested in late spring to 
early fall. This temporary rule will require posting of critical 
information needed to notify the public of the risk of eating 
shellfish. 

Comment Procedures: Comments, statements, data and 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1352 



TEMPORARY RULES 



other information may be submitted in writing within 60 days 
after the date of publication of the January 15. 1998 issue of 
the North Carolina Register. Copies of the proposed rules 
and information package max be obtained by contacting the 
Food and Lodging Program at (919) 715-0926. Written 
comments may be submitted to David Clawson, Shellfish 
Sanitation Section. PO Box 769. Morehead City. NC 28557. 

CHAPTER 18 - ENVIRONMENTAL HEALTH 

SUBCHAPTER 18A - SANITATION 

SECTION .0400 - SANITATION OE SHELLHSH - 
GENERAL OPERATION STANDARDS 

.0425 TAGGING 

(a) In order that information may be available to the 
Division with reference to the origin of shellstock, contamers 
holding shellstock shall be identified with a uniform tag or 
label. The tag shall be durable, waterproof and measure at 
least 2-5/8 by 5-1/4 inches (6.7 by 13.3 centimeters). The 
tag shall contain legible information arranged in specific 
order as follows; 

(1) the dealer's name, address and certification number 
assigned by the appropriate shellfish control 
agency; 

(2) the original shipper's certification number; 

(3) the harvest date; 

(4) the harvest location, including the country or state 
abbreviation; 

(5) when the shellstock has been in wet storage, the 
statement "THIS PRODUCT WAS IN^ WET 
STORAGE AT (FACILITY CERTIFICATION 
NUMBER) FROM (DATE) TO (DATE)"; 

(6) the type and quantity of shellfish; and 

(7) the following statement shall appear in bold 
capitalized type THIS TAG IS REQUIRED TO 
BE ATTACHED UNTIL CONTAINER IS 
EMPTY AND THEREAFTER KEPT ON FILE 
FOR 90 DAYS.' DAYS."; and 

(8) the following statement, or equivalent. 
""Consumer Advisory 

Eating raw oysters, clams or mussels may cause 
severe illness. People with the following 
conditions are at especially high risk: liver disease, 
alcoholism, diabetes, cancer, stomach or blood 
disorder, or weakened immune system. Ask your 
doctor if you are unsure of your risk. If you eat 
shellfish and become sick, see a doctor 
immediately."" 

(b) The uniform tag or label shall remain attached to the 
shellstock container until the container is empty and thereafter 
shall be kept on file for 90 days. 

(c) All shellstock from a depuration facility must be 
identified as having been cleansed by a depuration facility 
identified by a name and permit number on the tag. 



History Note: Authority G.S. 130A-230; 

Eff. February 1. 1987: 

Amended Eff. April 1. 1997: January 4, 1994: December 1, 

1987; M 

Temporary Amendment Eff. Febntar,- 1. 1998. ^ 

.0432 PUBLIC DISPLAY OF CONSUMER 

ADVISORY 

1 
All facilities and persons permitted m Rule .0302 and all { 

other businesses and persons that sell shellfish shall post in a 

conspicuous place where it may be readily observed by the 

public the following consumer advisory: 

"'Consumer Advisorv 

Eating raw oysters, clams or mussels may cause severe 

illness. People with the following conditions are at especially 

high risk: liver disease, alcoholism, diabetes, cancer, stomach 

or blood disorder, or weakened immune system. Ask your 

doctor if you are unsure of your risk. If you eat shellfish and 

become sick, see a doctor immediatelv."" 

Hision Note: Authority G.S. 130A-230: 
Temporary Adoption Eff. Februar\ 1_^ 1998. 

SECTION .2600 - SANITATION OF RESTAURANTS 

AND OTHER 

FOODHANDLING ESTABLISHMENTS 

.2612 SHELLHSH 

(a) All shellfish and Crustacea meat shall be obtained from A 
sources in compliance with the Department's rules on ■ 
shellfish and Crustacea. Copies of 15A NCAC 18A .0300 
through .0900 may be obtained from the Department. If the 
source of clams, oysters, or mussels is outside the state, the 
shipper's name shall appear on the ""Interstate Certified 
Shellfish Shippers List"" as published monthly by the Shellfish 
Sanitation Branch, Food and Drug Administration. If the 
source of cooked Crustacea meat is outside the state, it shall 

be certified by the regulatory authority of the state or territory 
of origin, attested by the presence of an official permit 
number on the container. 

(b) All shucked shellfish and all cooked Crustacea meat 
shall be stored in the original container. Each original 
contamer shall be clearly identified with the name and address 
of the packer, repacker, and the abbreviated name of the state 
or territory. Shucked shellfish unit containers shall be dated 
in accordance with 15A NCAC 18A .0600. 

(c) All shellstock shall be stored in the containers in which 
packed at the source. Each original container shall be clearly 
identified with a uniform tag or label bearing the name and 
address of the shipper, the certificate number issued by the 
state or territory regulatory authority, the abbreviated name 
of the state, the name of the waters from which the shellfish 
were taken, the kind and quantity of the shellstock in the 
container, and the name and address of the consignee. ^ 

(d) Shellstock shall be stored under refrigeration and in a fl 
manner to prevent cross-contamination to or from the ^ 
shellstock. The re-use of single-service shipping containers 



1353 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



TEMPORARY RULES 



and the storage of shucked shellfish in other containers are 
not allowed. 

(e) After each container of shellstock has been emptied, 
the management shall remove the stub of the tag and retain it 
for a period of at least 90 days. 

(f) With the exception of opening shellfish for immediate 
consumption on the premises, no shellfish shucking shall be 
performed unless the establishment holds a valid shellfish 
shucking permit. 

(g) Shellstock washing facilities shall consist of an 
approved mechanical shellfish washer, or a sink or slab with 
catch basin, indirectly drained into an approved sewage 
collection, treatment, and disposal system. The washing shall 
be done in a clean area, protected from contamination. A can 
wash facility shall not be used for the washing of shellstock 
or other foods. 

(h) The cooking of shellfish shall be accomplished in an 
area meeting the requirements of this Section. 

(i) Re-use of shells for the serving of food is prohibited. 
Shells shall be stored in a maimer to prevent flies, insects, 
rodents, and odors. 

(j) All establishments that prepare, serve, or sell shellfish 
shall post in a conspicuous place where it may be readily 
observed by the public prior to consumption of shellfish, the 
following consumer advisory: 
"Consumer Advisory 

Eating raw oysters, clams, or mussels may cause severe 
illness. People with the following conditions are at especially 
high risk: liver disease, alcoholism, diabetes, cancer, stomach 
or blood disorder, or weakened immune system. Ask your 
doctor if you are unsure of your risk. If you eat shellfish and 
become sick, see a doctor immediately." 

History Note: Authority G.S. 130A-248; 
Eff. May 5. 1980; 

Amended Eff. May 1, 1991; July 1. 1984; 
Temporary Amendment Eff. February 1. 1998. 



TITLE 21 - OCCUPATIONAL LICENSING 
BOARDS 



CHAPTER 32 - BOARD OF MEDICAL 
EXAMINERS 

Rule-making Agency: North Carolina Medical Board 

Rule Citation: 21 NCAC 32F .0003 

Effective Date: January 1, 1998 

Findings Reviewed and Approved by: Beecher R. Gray 

Authority for the rule-making: G.S. 90-15.1; 1508-21.1 

Reason for Proposed Action: Compliance with 1997 NC 
Session Laws which states registration fee is to be paid 
annually on each physician's birthday, effective January 1, 
1998. 

Comment Procedures: Comments may be mailed to the 
Rule-Making Coordinator at the NC Medical Board, 1203 
Front St., Raleigh, NC 27609, (919) 833-5583. Verbal 
comments may be presented at public hearing. 

SUBCHAPTER 32F - ANNUAL REGISTRATION 

.0003 FEE 

Each physician shall pay a bi&miial a registration fee of two 
one hundred dollars ($200.00) ($100.00) to the Board every 
odd numbe r ed year in accordance with G.S. 90-15.1; except, 
each physician holding a resident's training license shall pay a 
bi e nnial a fee of twenty five fifteen dollars ($25.00) ($15.00 ). 
every physician who holds a special volunteer license shall 
pay a fee of ten dollars (SlO.OO). and every physician who 
holds a limited volunteer license shall p ay no fee. 

History Note: Authority G. S. 90-15. 1; 90-18(13); 90-18. 1; 

Eff. February 1, 1976; 

Amended Eff. December 1, 1995; October 1, 1994; November 

1, 1991; May 1, 1989; 

Temporary Amendment Eff. January 1. 1998. 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1354 



RULES REVIEW COMMISSION 



1 his Section contains the agenda for the next meeting of the Rules Review Commission on Thursday. January 15. 1998. 
10:00 a.m.. at 1307 Glenwood Ave., Assembly Room. Raleigh, NC. Anyone wishing to submit written comment on any 
rule before the Commission should submit those comments to the RRC staff, the agency, and the individual 
Commissioners by Monday. January- 12. 1998. ai 5:00 p.m. Specific instructions and addresses may be obtained from 
the Rules Review Commission at 919-733-2721. Anyone wishing to address the Commission should notify the RRC staff 
and the agenq: at least 24 hours prior to the meeting. 



RULES REVIEW COMMISSION MEMBERS 



Appointed by Senate 

Teresa L. Smallwood, Vice Chairman 

Jim Funderburke 

Vemice B. Howard 

Philip O. Redwine 

David Twiddy 



Appointed by House 

Paul Powell, Chairman 

Anita White, 2™* Vice Chairman 

Mark Garside 

Steve Rader 

George Robinson 



RULES REVIEW COMMISSION MEETING DATES 



January 15, 1998 
Februar>' 19,1998 



March 19, 1998 
April 15, 1998 



MEETING DATE: JANUARY 15, 1997 

LOG OF HLINGS 

RULES SUBMITTED: NOVEMBER 20, 1997 THROUGH DECEMBER 20, 1997 



AGENCY/DIVISION 



RULE NAME 



RULE 



ACTION 



DHHS 



Rate Setting Methods 


lONCAC IB .0501 


Cost Reporting 


lONCAC IB .0502 


DHHS/MEDICAL CARE COMMISSION 




Ambulance and Basic Life Support 


10 NCAC 3D .0801 


Certified EMI Instructor 


10 NCAC 3D .0802 


Approved Teaching Institution 


10 NCAC 3D .0803 


Office of Emergency Medical Services 


10 NCAC 3D .0805 


Medical Crew Member 


10 NCAC 3D .0806 


Interior Dimensions 


10 NCAC 3D .0901 


Inspection Certificate 


10 NCAC 3D .0902 


Vehicle Body 


10 NCAC 3D .0904 


Oxygen Cylinders 


10 NCAC 3D .0905 


Doors 


10 NCAC 3D .0907 


Windows 


10 NCAC 3D .0908 


Rear-View Mirror 


10 NCAC 3D .0909 


Spare Tire 


10 NCAC 3D .0911 


Permit 


lONCAC 3D .0913 


Ambulance Lettering 


10 NCAC 3D .0915 


General Ambulance Requirements 


10 NCAC 3D .0916 


Equipment 


10 NCAC 3D .0917 


Linen 


lONCAC 3D .0918 


Medical Supplies 


10 NCAC 3D .0919 



Adopt 
Adopt 



Amend 

Amend 

Amend 

Amend 

Repeal 

Amend 

Repeal 

Amend 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Amend 

Amend 

Amend 

Repeal 

Repeal 

Repeal 



1355 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



RULES REVIEW COMMISSION 



\ 



Pillows and Mattresses 


10 NCAC 3D 


.0920 


Repeal 


Soiled Supplies 


10 NCAC 3D 


.0921 


Repeal 


Surfaces 


10 NCAC 3D 


.0922 


Repeal 


Blankets and Hand Towels 


10 NCAC 3D 


.0923 


Repeal 


Implements Inserted in Nose 


10 NCAC 3D 


.0924 


Repeal 


Infectious Disease 


10 NCAC 3D 


.0925 


Amend 


Storage 


10 NCAC 3D 


.0926 


Repeal 


Medical and Related Equipment 


10 NCAC 3D 


.1001 


Amend 


Extrication and Access Equipment 


10 NCAC 3D 


.1002 


Amend 


Other Equipment 


10 NCAC 3D 


.1003 


Amend 


Weapons 


10 NCAC 3D 


.1004 


Amend 


Equipment 


10 NCAC 3D 


.1103 


Amend 


Criteria for Certified EMT 


10 NCAC 3D 


.1202 


Amend 


Educational Programs 


10 NCAC 3D 


.1203 


Amend 


Aeromedical Flight Crew 


10 NCAC 3D 


.1204 


Amend 


Medical Responder Performance 


10 NCAC 3D 


.1205 


Amend 


Emergency Medical Technician 


10 NCAC 3D 


.1206 


Amend 


Certification Requirements 


10 NCAC 3D 


.1301 


Amend 


Certification Requirements 


10 NCAC 3D 


.1302 


Amend 


License, Permit or Certification Denial 


10 NCAC 3D 


.1401 


Amend 


Application Procedures 


10 NCAC 3D 


.1403 


Amend 


Mobile Intensive Care Unit II 


10 NCAC 3M 


.0105 


Repeal 


Mobile Intensive Care Unit II 


10 NCAC 3M 


.0205 


Repeal 



DHHS/DIVISION OF MEDICAL ASSISTANCE 

Disproportionate Share 



10NCAC26H .0213 



Amend 



JUSTICE/NC SHERIFFS' EDUCATION AND TRAINING STANDARDS COMMISSION 



) 



Development of Programs 

Certification 

Probationary Certification 

Evaluation 

Detention Officer Certification 

Time/Req Completion 

Evaluation for Training Waiver 

Purpose 

Purpose 

General Provisions 

Purpose 

General Provisions 

Purpose 

General Provisions 

Purpose 

DENR/ENVmONMENTAL MANAGEMENT COMMISSION 

Definitions 
Neuse River Basin 
Neuse River Basin 
Neuse River Basin 
Neuse River Basin 
Neuse River Basin 
Neuse River Basin 
Neuse River Basin 
French Broad River Basin 
Broad River Basin 
New River Basin 
Catawba River Basin 



12 NCAC lOB .0109 
12 NCAC lOB .0401 
12 NCAC lOB .0403 
12 NCAC lOB .0505 
12 NCAC lOB .0601 
12 NCAC lOB .0602 
12 NCAC lOB .0603 
12 NCAC lOB .0701 
12 NCAC lOB .1001 
12 NCAC lOB .1002 
12 NCAC lOB .1101 
12 NCAC lOB .1102 
12 NCAC lOB .1201 
12 NCAC lOB .1202 
12 NCAC lOB .2001 



15A NCAC 2B .0202 
15A NCAC 2B .0232 
15A NCAC 2B .0233 
15A NCAC 2B .0234 
15A NCAC 2B .0235 
15A NCAC 2B .0236 
15A NCAC 2B .0238 
15A NCAC 2B .0239 
15A NCAC 2B .0304 
15A NCAC 2B .0306 
15A NCAC 2B .0307 
15A NCAC 2B .0308 



Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 
Amend 



Amend 

Adopt 

Adopt 

Adopt 

Adopt 

Adopt 

Adopt 

Adopt 

Amend 

Amend 

Amend 

Amend 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1356 



RULES REVIEW COMMISSION 



Yadkin River Basin 


15A NCAC 2B .0309 


Amend 


Cape Fear River Basin 


15A NCAC 2B .0311 


Amend 


Tar-Pamlico River Basin 


15A NCAC 2B .0316 


Amend 


Pasquotank River Basin 


15ANCAC2B .0317 


Amend 


Definitions 


15A NCAC 2D .0101 


Amend 


Incorporation by Reference 


15A NCAC 2D .0104 


Amend 


Mailing List 


15A NCAC 2D .0105 


Amend 


Registration 


15A NCAC 2D .0202 


Amend 


Episode Criteria 


15A NCAC 2D .0302 


Amend 


Sources in Nonattainment Areas 


15ANCAC2D .0531 


Amend 


Vapor Return Piping 


15A NCAC 2D .0953 


Amend 


Measurement 


15ANCAC2D .1005 


Amend 


Multiple Facilities 


15ANCAC2D .1107 


Amend 


Reporting and Recordkeeping 


15ANCAC2D .1204 


Amend 


Operational Standards 


15ANCAC2D .1206 


Amend 


Measurement and Enforcement 


15A NCAC 2D .1305 


Amend 


Transportation Conformity Determination 


15A NCAC 2D .1503 


Amend 


General Conformity Determination 


15A NCAC 2D .1603 


Amend 


Definitions 


15A NCAC 2D .1701 


Adopt 


Applicability 


15ANCAC2D .1702 


Adopt 


Emission Standards 


15ANCAC2D .1703 


Adopt 


Test Methods 


15ANCAC2D .1704 


Adopt 


Operational Standards 


15ANCAC2D .1705 


Adopt 


Compliance Provisions 


15A NCAC 2D .1706 


Adopt 


Monitoring Provisions 


15A NCAC 2D .1707 


Adopt 


Reporting Requirements 


15ANCAC2D .1708 


Adopt 


Recordkeeping Requirements 


15ANCAC2D .1709 


Adopt 


Compliance Schedules 


15ANCAC2D .1710 


Adopt 


Definitions 


15ANCAC2D .1902 


Amend 


Permissible Open Burning 


15A NCAC 2D .1903 


Amend 


Definitions 


15A NCAC 2Q .0103 


Amend 


Delegation of Authority 


15ANCAC2Q .0108 


Amend 


Annual Emissions Reporting 


15A NCAC 2Q .0207 


Amend 


Public Participation Procedures 


15A NCAC 2Q .0307 


Amend 


Public Panicipation 


15ANCAC2Q .0521 


Amend 


Grain Elevators 


15A NCAC 2Q .0805 


Amend 


Cotton Gins 


15A NCAC 2Q .0806 


Amend 


Emergency Generators 


15A NCAC 2Q .0807 


Amend 


DENR/MARINE nSHERIES COMMISSION 






Definitions 


15ANCAC3I .0101 


Amend 


Fishery Resource Grant 


15ANCAC3I .0117 


Amend 


Gill Nets 


15A NCAC 3J .0103 


Amend 


Trawl Nets 


15A NCAC 3J .0104 


Amend 


New River 


15A NCAC 3J .0208 


Adopt 


Crab, Eel, Fish & Shrimp Pots 


15A NCAC 3J .0301 


Amend 


Flounder 


15A NCAC 3M .0503 


Amend 


Snapper-Grouper 


15A NCAC 3M .0506 


Amend 


Protection of Private Shellfish 


15ANCAC30 .0211 


Amend 


DENR/WILDLIFE RESOURCES COMMISSION 






Granville, Vance & Warren Counties 


15ANCAC lOF .0311 


Amend 


Mecklenburg and Gaston Counties 


15A NCAC lOF .0333 


Amend 


Graham County 


15A NCAC lOF .0360 


Amend 



DENR/RADIATION PROTECTION COMMISSION 

Definitions 



15A NCAC 11 .0104 



Amend 



1357 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



RULES REVIEW COMMISSION 



Federal Rules Incoq)orated 15A NCAC II .0117 

Purpose and Scope 15 A NCAC 1 1 .0301 

Expiration and Termination 15A NCAC 11 .0339 

Renewal of Licenses 15 A NCAC 1 1 .0340 

Financial Assurance 15 A NCAC 11 .0353 

Release of Patients 15A NCAC 1 1 .0358 

Purpose and Scope 15A NCAC 11 .0401 

Radiation Dose 15A NCAC 1 1 .0402 

Determination of Prior Dose 15 A NCAC 1 1 .0403 

Concentrations 15A NCAC 1 1 .0404 

Exposure of Minors 15A NCAC 1 1 .0405 

Permissible Levels 15A NCAC 1 1 .0406 

Concentration in Effluents 15A NCAC 1 1 .0407 

Bioassay Services 15 A NCAC 11 .0408 

Surveys 15A NCAC 11 .0409 

Personnel Monitoring 15A NCAC 11 .0410 

Caution Signs 15A NCAC 11 .041 1 

Exceptions from Posting 15A NCAC 11 .0412 

Instruction of Personnel 15A NCAC 1 1 .0413 

Storage of Sources 15 A NCAC 1 1 .0414 

Picking Up 15A NCAC 1 1 .0415 

Waste Disposal 15 A NCAC 11 .0416 

Records 15 A NCAC 11 .0417 

Reports of Theft or Loss 15A NCAC 11 .0418 

Notification of Incidents 15A NCAC 11 .0419 

Overexposures and Excessive Levels 15 A NCAC 11 .0420 

Vacating Premises 15A NCAC 11 .0421 

Notification and Reports 15A NCAC 1 1 .0422 

Reference Concentrations 15A NCAC 1 1 .0423 

Reference for Labeling 15A NCAC 1 1 .0424 

Classification 15A NCAC 1 1 .0425 

Radioactive Waste Characteristics 15A NCAC 1 1 .0426 

Labeling 15A NCAC 1 1 .0427 

Transfer of Radioactive Waste 15A NCAC 1 1 .0428 

Purpose and Scope 15 A NCAC 11 .1601 

Radiation Protection Programs 15A NCAC 11 .1603 

Dose Limits 15A NCAC 11 .1611 

Use of Individual Equipment 15A NCAC 11 .1620 

Reports of Radiation 15A NCAC 11 .1647 



Amend 

Amend 

Amend 

Amend 

Amend 

Adopt 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Repeal 

Amend 

Amend 

Amend 

Amend 

Amend 



DENR/COMMISSION FOR HEALTH SERVICES 

Continuing Education 

Definitions 

Permits 

Public Display 

Inspections 

Inspection Forms 

Grading 

Standards 

Sources of Food 

Refrigeration 

Storage 

Shellfish 

Barbeque Places 

Outdoor Dining 

Milk and Milk Products 

Requirements 



15A NCAC 18A .2306 Amend 

15A NCAC ISA .2601 Amend 

15 A NCAC 18A .2602 Amend 

15A NCAC 18A .2603 Amend 

15A NCAC 18A .2604 Amend 

15 A NCAC 18A .2605 Amend 

15A NCAC 18A .2606 Amend 

15A NCAC 18A .2607 Amend 

15A NCAC 18A .2608 Amend 

15A NCAC 18A .2609 Amend 

15A NCAC 18A .2610 Amend 

15A NCAC 18A .2612 Amend 

15A NCAC 18A .2613 Amend 

15A NCAC 18A .2614 Amend 

15A NCAC 18A .2615 Amend 

15A NCAC 18A .2616 Amend 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1358 



RULES REVIEW COMMISSION 



Utensils and Equipment 


15ANCAC 18A.2617 


Amend 


Cleaning of Equipment 


15ANCAC 18A .2618 


Amend 


Storage and Handlmg 


15A NCAC 18A .2620 


Amend 


Drinking Water Facilities 


I5ANCAC 18A .2621 


Amend 


Storage 


15A NCAC 18A .2622 


Amend 


Water Supply 


15A NCAC 18A .2623 


Amend 


Toilet Facilities 


15A NCAC 18A .2624 


Amend 


Disposal of Waste 


15ANCAC 18A .2626 


Amend 


Floors 


15A NCAC 18A .2627 


Amend 


Walls and Ceilings 


15ANCAC 18A .2628 


Amend 


Lighting 


ISA NCAC 18A .2630 


Amend 


Storage Spaces 


15ANCAC I8A.2632 


Amend 


Premises 


15ANCAC ISA .2633 


Amend 


General Requirements 


ISA NCAC ISA .2638 


Amend 


Informal Review Process 


ISA NCAC ISA .2643 


Amend 


NC STATE BOARD OF CONLML^sITY COLLEGES 






Definitions 


23 NCAC I A .0001 


Amend 


Educational Guarantee 


23 NCAC 2C .0108 


Amend 


Faculty- 


23 NCAC 2C .0202 


Amend 


Purchase Computer Hardware 


23 NCAC 2C .0207 


Amend 


Education Services for Minors 


23 NCAC 2C .0305 


Amend 


Program Review 


23 NCAC 2C .0604 


Repeal 


Civil Rights 


23 NCAC 2C .0701 


Amend 


Educational Leave with Pay 


23 NCAC 2D .0103 


Amend 


Authority to Establish Tuition 


23 NCAC 2D .0201 


Amend 


Curriculum 


23 NCAC 2D .0202 


Amend 


Extension Programs 


23 NCAC 2D .0203 


Amend 


Operating Budget Requests 


23 NCAC 2D .0301 


Amend 


Reponing of Student Hours 


23 NCAC 2D .0323 


Amend 


Reporting of Student Hours 


23 NCAC 2D .0324 


Amend 


Reponing Student Membership Hours 


23 NCAC 2D .0327 


Amend 


Program Classification 


23 NCAC 2E .0101 


Amend 


Curriculum Programs 


23 NCAC 2E .0102 


Repeal 


Curriculum Program Approvals 


23 NCAC 2E .0201 


Amend 


Standards 


23 NCAC 2E .0203 


Repeal 


Courses and Standards 


23 NCAC 2E .0204 


Amend 


Program Review 


23 NCAC 2E .020S 


Amend 


Articulation 


23 NCAC 2E .0501 


Amend 


Collaborative Agreements 


23 NCAC 2E .0604 


Amend 



RULES REVIEW OBJECTIONS 



COMMERCE 



Community .\ssistance 

4 NCAC 19L .0401 - General 

Agency Revised Rule 
4 NCAC 19L .0404 - Grant Category Allocation 

Agency Revised Rule 
4 NCAC 19L .0505 - Selection Criteria 

Agency Revised Rule 
4 NCAC 19L .0707 - Eligibilm- Requirements 

Agency Revised Rule 
4 NCAC 19L .0708 - Selection Criteria 

Agency Revised Rule 



RRC Objection 
Obj. Removed 
RRC Objection 
Obj. Removed 
RRC Objection 
Obj. Removed 
RRC Objection 
Obj. Removed 
RRC Objection 
Obj. Removed 



11/20/97 
12/18/97 
11/20/97 
12/18/97 
11/20/97 
12/18/97 
11/20/97 
12/18/97 
11/20/97 
12/18/97 



1359 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



RULES REVIEW COMMISSION 



4 NCAC 19L .0911 - Recordkeeping 

Agency Revised Rule 
4 NCAC 19L .1009- Housing Rehabilitation 

Agency Revised Rule 
4 NCAC 19L .1011 - Lead-Based Paint 

Agency Revised Rule 
4 NCAC 19L .1303 - Selection Criteria 

Agency Revised Rule 
4 NCAC 19L .1703 - Selection Criteria 

Agency Revised Rule 
4 NCAC 19L .1804- Size of Loan Approvals 

Agency Revised Rule 
4 NCAC 19L .1805 - Selection Criteria 

Agency Revised Rule 



RRC Objection 


11/20/97 


Obj. Removed 


12/18/97 


RRC Objection 


11/20/97 


Obj. Removed 


12/18/97 


RRC Objection 


11/20/97 


Obj. Removed 


12/18/97 


RRC Objection 


11/20/97 


Obj. Removed 


12/18/97 


RRC Objection 


11/20/97 


Obj. Removed 


12/18/97 


RRC Objection 


11/20/97 


Obj. Removed 


12/18/97 


RRC Objection 


11/20/97 


Obj. Removed 


12/18/97 



ENVIRONMENT, HEALTH, AND NATURAL RESOURCES 



Coastal Resources Commission 

15A NCAC 7H .1104- General Conditions 

Agency Revised Rule 
15A NCAC 7H .1304- General Conditions 

Agency Revised Rule 
ISA NCAC 7H .1404 - General Conditions 

Agency Revised Rule 
15A NCAC 7H . 1504 - General Conditions 

Agency Revised Rule 
15A NCAC 7H .1704- General Conditions 

Agency Revised Rule 
15A NCAC 7H .1804 - General Conditions 

Agency Revised Rule 
15A NCAC 7H .1904 - General Conditions 

Agency Revised Rule 
15A NCAC 7H .2004 - General Conditions 

Agency Revised Rule 
15A NCAC 7H .2104 - General Conditions 

Agency Revised Rule 
15A NCAC 7M .0303 - Policy Statements 

Agency Revised Rule 

Environmental Management 

15A NCAC 2L .0115 - Risk-Based Assmnt/Corr Action/Petro Underground Strge Tanks 
15A NCAC 2N .0707 - Corrective Action Plan 

Health Services 

15A NCAC 18A .1938 - Responsibilities 

Agency Revised Rule 
15A NCAC 18A .1958 - Non-Ground Absorption Sewage Treatment Systems 

Agency Revised Rule 

Soil and Water Conservation 

15A NCAC 6E .0104 - Best Management Practices Eligible for Cost Share Payments 

Agency Responded 

Agency Revised Rule 
15A NCAC 6E .0105 - Cost Share and Incentive Payments 

Agency Responded 

Agency Revised Rule 



RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


RRC Objection 


12/18/97 


RRC Objection 


11/20/97 


Obj. Removed 


12/18/97 


RRC Objection 


12/18/97 


RRC Objection 


12/18/97 


RRC Objection 


10/16/97 


Obj. Removed 


■ 11/20/97 


RRC Objection 


10/16/97 


Obj. Removed 


11/20/97 


RRC Objection 


10/16/97 


Obj. Cont'd 


11/20/97 


Obj. Removed 


12/18/97 


RRC Objection 


10/16/97 


Obj. Cont'd 


11/20/97 


Obj. Removed 


12/18/97 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1360 



RULES REVIEW COMMISSION 



Water Pollution Controls Systems 

ISA NCAC 8F .0201 - Duties and Requirements of Owners 

No Response from Agency 

Agency Revised Rule 
]5A NCAC 8F .0203 - Duties and Requirements of an Operator in Charge 

No Response from Agency 

Agency Revised Rule 

Agency Revised Rule 



RRC Objection 
Obj. Cont'd 
Obj. Removed 
RRC Objection 
Obj. Cont'd 
RRC Objection 
Obj. Removed 



09/18/97 
10/16/97 
11/20/97 
09/18/97 
10/16/97 
11/20/97 
12/18/97 



HUMAN RESOURCES 



Facility Services 

10 NCAC 3D . 2001 - Definitions RRC Objection 

Agency Revised Rule Obj. Removed 

10 NCAC 3D .2101 - Level 1 Trauma Center Criteria RRC Objection 

Agency Revised Rule Obj. Removed 

10 NCAC 3D .2102 - Level 11 Trauma Center Criteria RRC Objection 

Agency Revised Rule Obj. Removed 

10 NCAC 3D .2105 - Initial Designation Process RRC Objection 

Agency Revised Rule Obj. Removed 

10 NCA C 3D .2106- Renewal Designation Process RRC Objection 

Agency Revised Rule Obj. Removed 
10 NCAC 3D .2201 - Denial, Probation. Vol. Withdrawal 'Rev /Trauma Ctr Designation RRC Objection 

Agency Revised Rule Obj. Removed 

10 NCAC 3D .2303 - Regional Trauma System Policy Development RRC Objection 

Agency Revised Rule Obj. Removed 

10 NCAC 3R .3073 - Dem/Proj /Pediatric Nursing Care Need Deter. (Review Cat. G) RRC Objection 

Agency Revised Rule Obj. Removed 

10 NCAC 3R .3074 - Home Health Agcy Off. Need Determination (Review Cat. F) RRC Objection 

Agency Revised Rule Obj. Removed 

10 NCAC 3R .3081 - Policies for Inpatient Rehabilitation Services RRC Objection 

Agency Revised Rule Obj. Removed 



10/16/97 
11/20/97 
10/16/97 
11/20/97 
10/16/97 
11/20/97 
10/16/97 
11/20/97 
10/16/97 
11/20/97 
10/16/97 
11/20/97 
10/16/97 
11/20/97 
11/20/97 
12/18/97 
11/20/97 
12/18/97 
11/20/97 
12/18/97 



PUBLIC INSTRUCTION 

16 NCAC 6C .0307 - Certificate Rene^val 
No Response from Agency- 
Agency Revised Rule 

16 NCAC 6D .0103 - Graduation Requirements 
No Response from Agency- 
Agency Revised Rule 

16 NCAC 6D .0301 - Testing Requirements and Opportunities 
No Response from Agency- 
Agency- Revised Rule 

16 NCAC 6G .0305 - End-of -Course Tests 
No Response from Agency- 
Agency- Revised Rule 

16 NCAC 6G .0306 - Testing Code of Ethics 
No Response from Agency- 
Agency- Revised Rule 

16 NCAC 6G .0307 - Assistance Teams 
No Response from Agency- 
Agency- Revised Rule 

16 NCAC 6G . 0308 - Due Process Protections 
No Response from Agency- 
Agency- Revised Rule 

SPEECH AND LANGUAGE PATHOLOGISTS AND AUDIOLOGISTS 



RRC Objection 
Obj. Cont'd 
Obj. Removed 
RRC Objection 
Obj. Cont'd 
Obj. Removed 
RRC Objection 
Obj. Cont'd 
Obj. Removed 
RRC Objection 
Obj. Cont'd 
Obj. Removed 
RRC Objection 
Obj. Cont'd 
Obj. Removed 
RRC Objection 
Obj. Cont'd 
Obj. Removed 
RRC Objection 
Obj. Cont'd 
Obj. Removed 



10/16/97 
11/20/97 
12/18/97 
10/16/97 
11/20/97 
12/18/97 
10/16/97 
11/20/97 
12/18/97 
10/16/97 
11/20/97 
12/18/97 
10/16/97 
11/20/97 
12/18/97 
10/16/97 
11/20/97 
12/18/97 
10/16/97 
11/20/97 
12/18/97 



1361 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



RULES REVIEW COMMISSION 



\ 



21 NCAC 64 .1002 - General Requirements 

No Response from Agency 
21 NCAC 64 . 1004 - Authorized Tasks of Speech-Language Pathology Assistants 

No Response from Agency 



RRC Objection 


11/20/97 


Obj. Cont'd 


12/18/97 


RRC Objection 


11/20/97 


Obj. Cont'd 


12/18/97 



\ 



12:14 



NORTH CAROLINA REGISTER 



January 15, 1998 



1362 



CONTESTED CASE DECISIONS 



STATE OF NORTH CAROLINA 



COUNTY OF PASQUOTANK 



IN THE OFFICE OF 

ADMINISTRATIVE HEARINGS 

96 OSP 0254 



MICHAEL MCKIMMEY, 

Petitioner, 

V. 

DEPARTMENT OF CORRECTION, 

Respondent. 



RECOMMENDED DECISION 



This matter came on for hearing before the undersigned administrative law judge on September 2 and 3, 1997, in 
Elizabeth City. The petitioner was represented by D. Keith league and Danny Glover, Jr. The respondent was represented by 
Joan Herre Erwin and Elizabeth Parsons. The respondent presented ten witnesses and introduced Exhibits #1 - 28 and 32 - 36. 
The petitioner presented two witnesses and introduced Exhibits tt\ - 19. The transcript was delivered to the petitioner on 
November 10, 1997. The petitioner submitted his proposed recommended decision on December 10, 1997. 

ISSUE 

Did the respondent have just cause to dismiss the petitioner? 

FINDINGS OF FACT 

1. The Division of Adult Probation and Parole ("DAPP") is a pan of the Department of Correction. 

2. The petitioner began working for DAPP as a Probation/Parole Officer ("P/PO") in the First Judicial District 
and was assigned to the Dare County office in Manteo, on January 2, 1994. He remained so employed until November 20, 
1995, the date of his dismissal. 

3. The petitioner worked in Dare, Currituck and Camden Counties. 

4. The petitioner's immediate supervisor. Chief P/PO Jake McClease, was dismissed one week after the 
petitioner was employed. 

5. Intensive Officer ("I/O") Jimmie Brickhouse assumed supervision of the day to day operations of the office 
after McClease was dismissed. 

6. I/O Brickhouse's temporary management duties did not include personnel matters and did not include training 
the petitioner. 

7. During the time in which he acted as supervisor of the petitioner's office, I/O Brickhouse's office was located 
elsewhere. I/O Brickhouse would stop by the petitioner's office periodically to son mail and attempt to keep things flowing. 

8. Prior to assuming these supervision responsibilities, I/O Brickhouse had no supervisory experience. 

9. After McClease was dismissed, the Manteo office was in "total chaos." 

10. The petitioner was without a direct supervisor from January, 1994, until September, 1994, when Fay Boyd 
was hired as the petitioner's Chief P/PO. 



1. Fay Boyd remained the petitioner's Chief P/PO From September, 1994, until the date of the petitioner's 



dismissal. 



12. The petitioner carried a full caseload of approximately 55 parole cases. 



1363 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



CONTESTED CASE DECISIONS 



13. During the period of time in which he was without a direct supervisor, the petitioner was instructed to call his 
Judicial District Manager ("JDM"), Roy Daniels, if he had questions concerning his parole caseload. 

14. The petitioner's office was located in Manteo and Roy Daniels' office was located in Elizabeth City - 
approximately 70 miles from Manteo. 

15. Roy Daniels was promoted to JDM two months before the petitioner was employed. 

16. Prior to becoming JDM, Roy Daniels had no supervisory experience. 

17. As JDM, Roy Daniels was responsible for 21 people in seven counties. He also continued to supervise 125 
parole cases. 

18. Prior to being promoted to Chief P/PO, Fay Boyd had no supervisory experience, had not been given any 
manuals pertaining to supervision, and had not received any supervisory training. 

19. Prior to becoming the petitioner's direct supervisor. Fay Boyd's experience with parole cases was limited to 
three cases. 

20. After being promoted to Chief P/PO, she had "her hands full trying to supervise." She "could not do 
everything she was told to do." She was so concerned that she discussed her problems with JDM Roy Daniels on several 
occasions. 

21. JDM Roy Daniels responded by saying that he had his hands full also and instructed her to do the best she 
could. 

22. During the period of the petitioner's employment, the respondent never provided a complete Parole Manual to 
the petitioner. 

23. Approximately two months after the petitioner was employed, JDM Roy Daniels did provide the petitioner 
four chapters of the Parole Manual (Chapter 3 - "Investigations"; Chapter 5 - "Supervision"; Chapter 6 - "Interstate Compact 
Services"; and Chapter 7 - "Violation and Revocation"). The petitioner made copies for his use. 

24. Six months after beginning work for the respondent, the petitioner attended DAPP's Basic Probation and 
Parole Academy in Salemburg, from June 6, 1994, through July 1, 1994. 

25. The petitioner attended Course 318, "Parole Violation and Revocations," a four semester course including one 
hour of lecture and three hours of practical skills which covered, among other things, the duty of a parole officer to file a 
DAPP-IB ("Offense Repon") after learning that a parolee under his supervision has committed a criminal offense, including an 
assault on a female. 

26. A DAPP-IB is a report which a P/PO uses to advise the Parole Commission that a parolee imder his 
supervision has committed a criminal offense in contravention of the parolee's parole agreement. 

27. DAPP's policy concerning the filing of a DAPP-IB was set forth in the dismissal letter: 

Upon receipt of information that a parolee is suspected of violating his parole, the officer 
must initiate a complete and accurate investigation to determine whether there is validity in 
the charge .... If the parolee has been arrested and charged with an offense it is the duty of 
the officer to ascertain all of the facts about the violation from the police or other persons, 
and to interview the parolee for his version .... The officer's chief role, however, is to 
investigate and report violations of parole to the Parole Commission which has the final 
decision making authority in revocation matters . . . .The DAPP-IB "Offense Report" is to 
be submitted each time a parolee is charged with the following: all assaultive and sex related 
offenses, all felony offenses, and all alcohol and drug related driving offenses. A 
subsequent DAPP-IB must also be submitted on these cases when the disposition of the 
charge is determined. 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1364 



CONTESTED CASE DECISIONS 



28. It is DAPP's policy that the P/PO submit a DAPP-IB within 30 calendar days after it is learned that a parolee 
under supervision has been charged with an assaultive criminal violation. 

29. JDM Roy Daniels told the petitioner that he did not have to submit a DAPP-IB on all misdemeanor charges 
because, if he did, he would never get all of his field work done. 

30. To submit a DAPP-IB, the P/PO mails the DAPP-IB to the DAPP Supervision Office in Raleigh. Upon its 
receipt of such, the DAPP Supervision Office then mails the DAPP-IB to the Parole Commission Office. 

31 . After submitting a DAPP-IB, a P/PO does nothing further with respect to the underlying criminal charge until 
a court disposition of the criminal charge is made or unless he receives further instructions from the Parole Commission, 
whichever occurs first. 

32. If after receiving a DAPP-IB the Parole Commission wishes to issue a parole warrant, it mails the DAPP 
Supervision Office a request for a PC- 14. 

33. A PC- 14 is a report which a P/PO uses to advise the Parole Commission that a parolee under his supervision 
has violated his parole and upon which the P/PO makes a recommendation that the Parole Commission issue a parole warrant. 

34. I/O Brickhouse, who had over six years experience as a P/PO, has never received a parole warrant after only 
filing a DAPP-IB. 

35. Ray Griggs, a P/PO from Currituck County who had over eleven years experience as a P/PO, has never 
received a parole warrant after only filing a DAPP-IB. 

36. Charles Marm, Sr., a member of the Parole Commission who had reviewed over 50,000 parole cases, testified 
that the Parole Commission does not issue a warrant based solely on the filing of a DAPP-IB. 

37. The Parole Commission has discretion as to whether to request a PC- 14 from the P/PO after receiving a 
DAPP-IB. Prior to the date of the petitioner's dismissal, there was no statutory time limit in which the Parole Commission, 
after receiving a DAPP-IB, could request a PC-14. 

38. Upon receipt of the request for a PC-14 from the Parole Commission, the DAPP Supervision Office mails the 
request for a PC-14 to the P/PO. The P/PO then completes the PC-14 and mails it to the DAPP Supervision Office. The DAPP 
Supervision Office mails the PC-14 to the Parole Commission. 

39. Upon receipt of the PC-14, the Parole Commission has discretion to issue or not to issue a parole warrant. 
Prior to the date of the petitioner's dismissal, there was no statutory time limit in which the Parole Commission, after receiving 
a PC-14, could issue a parole warrant. 

40. In all of the cases in which the petitioner had filed a DAPP-IB as a result of misdemeanor charges, the Parole 
Commission had never requested additional information or issued a warrant. The Commission had only instructed him to 
continue supervision of the case pending the outcome of the case in Court. 

41 . A "collateral contact" is a contact with any person, source or agency other than the parolee. 

42. A collateral contact to determine possible criminal acts includes checking court records, NCIC checks, PIN 
checks, speaking to law enforcement officials, and speaking to relatives, friends or associates of the parolee. 

43. Prior to January 1, 1995, DAPP policy stated that a P/PO must make a collateral contact every 20 working 
days to determine possible criminal acts committed by the parolee. 

44. After January 1, 1995, DAPP policy was revised so that a P/PO must make a collateral contact every 30 
calendar days to determine possible criminal acts committed by the parolee. 

45. A DAPP-9 is a non-computerized, hand-written narrative journal in which a P/PO logs every activity which 
occurs in a parole case. 



1365 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



46. DAPP policy states that if an activity is not recorded in the narrative summary, then the contact is treated as if 
it never occurred. 

47. A DAPP-1 is a data entry sheet which contains biographical information on a parolee. 

48. DAPP policy states that a DAPP-1 is to be forwarded to the DAPP Supervision Office in Raleigh within five 
working days of a parolee's release from prison. 

49. If a DAPP-1 is not forward to the DAPP Supervision Office, the parole file is not entered on the DAPP 
central computer. 

50. If the parole file is not entered on the DAPP central computer, the file will not appear on the periodic case 
review sheet of the Chief P/PO. 

51. If a parole file does not appear on the Chief P/PO's case review sheet, the file will not be periodically 
reviewed by the Chief P/PO as it would be if the case appeared on the case review sheet. 

52. The parole case of Donovan Ault, a.k.a. Ivan Lovell, ("Ault") was classified as a high risk case. 

53. DAPP policy states that high risk cases are to be periodically reviewed by the Chief P/PO once every six 
months. 

54. Prior to the petitioner's dismissal, there was no system, other than the Chief P/PO's case review sheet, by 
which the Chief P/PO could track or monitor high risk cases. 

55. An "absconder warrant" is an arrest warrant issued by the Parole Commission in cases in which a parolee has 
left the state without permission. 

56. Ault was first committed to the Department of Correction on September 27, 1989, after being convicted on 
three felony charges involving cocaine. 

57. Ault was later committed a second time to the Department of Correction on additional cocaine charges. 

58. Ault's second sentence was for 10 years. He only served approximately one year before being paroled by the 
Parole Commission. 

59. On June 6, 1994, Carolyn Thomas, the parole coordinator for the petitioner's branch, contacted I/O 
Brickhouse to coordinate the parole of Ault. 

60. I/O Brickhouse facilitated the parole release of Ault and supervised Ault until June 17, 1994. 

61. I/O Brickhouse failed to submit a DAPP-1 concerning the Ault file to the Parole Commission. 

62. The Ault file was not placed in the DAPP computer as a result of I/O Brickhouse 's failure to submit a DAPP- 
1. 

63. I/O Brickhouse was disciplined by the respondent for failing to submit the DAPP-1. 

64. On July 6, 1994, the petitioner assumed supervision of Ault. 

65. From July 6, 1994, until the date of his dismissal, the petitioner was Ault's parole officer. 

66. On April 3, 1995, the petitioner requested an absconder warrant for Ault. Ault had previously requested to 
have his parole transferred to New York. However, he failed to report to his approved New York residence. 

67. On April 24, 1995, the petitioner received the absconder warrant from the Parole Commission. 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1366 



CONTESTED CASE DECISIONS 



68. Thereafter, the petitioner made several unsuccessful attempts to contact Ault by telephone in order to serve the 
parole warrant on Ault. 

69. On June 5, 1995, the petitioner delivered the absconder warrant to the Dare County Detention Center so that 
law enforcement officials could serve the warrant upon Ault. 

70. On June 12, 1995, prior to being served with the absconder warrant, Ault appeared in the petitioner's office. 

71. The petitioner immediately took Ault to the Dare County Detention Center for service of the warrant upon 
him. 

72. The petitioner then contacted the Parole Commission and notified them that he had arrested Ault. He also 
called the E.xtradition Office to inform them of the arrest. 

73. Prior to any preliminary hearing, the Parole Commission rescinded the absconder warrant and released Ault 
from custody on June 20, 1995. 

74. On May 15, 1995, the petitioner's Chief P/PO, Fay Boyd, knew that a DAPP-1 had not been filed in the Ault 
file. 

75. Boyd also knew on May 15, 1995, that she had never conducted a review of the Ault file because no DAPP-1 
had been filed. Therefore, she should have known that the file would not have appeared on her periodic case review sheet. 

76. Boyd failed to conduct a review of the Ault file on May 15, 1995, or at anytime thereafter prior to the murder 
of the Maryland State Trooper. 

77. Boyd was disciplined by the respondent for failing to periodically review the Ault file as required by DAPP 
policy. 

78. The petitioner submitted the DAPP-1 in the Ault file on May 25, 1995. 

79. The disciplinary action taken against the petitioner was not based upon his failure to submit a DAPP-1. 

80. During the week of August 20, 1995, the petitioner was notified by law enforcement officials that Ault had 
been charged with one count of assault with a deadly weapon against Lumis Spruill (95 CR 4517). 

81. Prior to August 20, 1995, Ault had never been charged with any criminal violations involving violence or 
assaultive behavior. 

82. On August 24, 1995, the petitioner personally brought Ault to Lt. Col. Williams' office to facilitate service 
upon Ault of the warrant in 95 CR 4517. 

83. Lt. Col. Williams informed the petitioner that the Ault/Spruill situation was one in which there were cross- 
warrants, i.e., both individuals had pressed charges against the other. 

84. The same day, the petitioner escorted Ault to the Dare County Detention Center where the warrant in 95 CR 
4517 was served upon Ault. 

85. A Magistrate released Ault on bond pending the trial on that charge. 

86. The petitioner failed to report any of the activity related to the Ault/Spruill matter in the Ault narrative 
summary. 

87. The petitioner did not file a DAPP-IB for 95 CR 4517. 

88. The petitioner did not file a DAPP- IB on the pending charges in 95 CR 4517 because he knew that it was a 
cross-warrant situation between two reputed drug dealers. He decided to wait until the courts disposed of the charges. 



1367 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



89. The petitioner made personal contact with Ault in Auh's home on August 29, 1995. 

90. The petitioner made personal contact with Ault in the petitioner's office on September 7, 1995, when Ault 
informed him that Ault's ex-girlfriend, Valerie Banks, had him arrested on two counts of assault with a deadly weapon, 95 CR 
4518 and 4519, one occurring on September 3, 1995, and the other occurring on September 5, 1995. 

91. With respect to 95 CR 4518 and 4519, a Magistrate allowed Ault to go free on bond pending the trial on those 
charges. 

92. The petitioner investigated 95 CR 4518 and 4519 by visually examining Valerie Banks for any bruises or 
injuries. He looked at Ault's car, which the petitioner understood was one of the alleged deadly weapons. The petitioner did 
not see any signs of violence on either Valerie Banks or on Ault's car. 

93. The petitioner did not file a DAPP-IB on either 95 CR 4518 and 4519. 

94. The petitioner did not file a DAPP-IB on the pending charges in 95 CR 4518 and 4519 because he 
investigated the allegations and found no evidence of violence. He knew that the complainant and Ault had an ongoing child 
custody/support dispute. His Judicial District Manager had previously informed him that he was not required to submit a 
DAPP-IB on every misdemeanor charge. In the petitioner's past experience of filing DAPP-lB's on misdemeanor charges, the 
Parole Commission had always told him to continue supervision pending the court disposition. 

95. The petitioner made personal contact with Ault on September 13, 1995, when the petitioner saw and stopped 
to speak to Ault at the local McDonald's. 

96. Previously that day, the petitioner had gone by Ault's home but no one was home. 

97. On September 28, 1995, the petitioner attended the scheduled court hearing on the Spruill charge and the 
Banks charges. The hearings were continued from that day. 

98. On October 12, 1995, the petitioner made personal contact with Ault in the petitioner's office. 

99. On October 13, 1995, the petitioner made personal contact with Ault in court at a civil hearing involving 
Valerie Banks. 

100. The Ault narrative summary showed no collateral contacts by the petitioner between August and October 13, 
1995. 

101. Sometime between October 14, 1995, and October 17, 1995, Ault absconded from North Carolina and 
traveled to Maryland. 

102. Prior to Ault's leaving, the petitioner had no knowledge that Ault was planning to leave the state. 

103. Prior to Ault's leaving, the petitioner did not issue a travel permit to Ault. 

104. On October 17, 1995, Ault shot and killed a Maryland State Trooper. 

105. On October 19, 1995, Chief P/PO Boyd reviewed the Ault file and indicated the following in the narrative 
summary: "File in order. PPO did not give permission to leave state and no travel permit had been issued for this leave." 

106. By the next working day following the murder, the Ault situation was a highly-publicized media case. 

107. Shortly following the murder, the Secretary of the Department of Correction, Franklin Freeman, and the 
Chairman of the Parole Commission, Juanita Baker, were summoned to a meeting with Governor Jim Hunt concerning the Ault 
matter. 

108. Immediately following said meeting, Secretary Freeman instructed Theodis Beck, Director of the Division of 
Adult Probation and Parole, to institute an investigation into the supervision of the parolee Ault. 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1368 



CONTESTED CASE DECISIONS 



109. Theodis Beck then gave Sherry Pilkington, Assistant Director of Field Service for the Division of Adult 
Probation and Parole, a newspaper article on the Ault situation which contained comments written in the margin by Governor 
Hunt. 

1 10. Pilkington then contacted Roy Daniels. Following his conversation with Pilkington, Daniels sent newspapers 
articles on the Ault situation to Raleigh because of the high media coverage of the event. 

111. Roy Daniels could not name any other parole case in which he had sent similar newspaper articles to Raleigh. 

112. Director Beck instructed Pilkington, Woodley Lee, Assistant Director of Field Operations for the Division of 
Adult Probation and Parole, and Carol Jenkins, legal counsel, to conduct an investigation into the circumstances surrounding the 
death of the Maryland State Trooper. 

113. Following the initial stage of the investigation, the investigation team recommended that the petitioner be 
dismissed, effective immediately, for grossly inefficient job performance in his supervision of Ault. 

114. Based upon the team's recommendation. Director Beck, on behalf of the respondent, decided to dismiss the 
petitioner, 

115. The respondent provided oral and written notice to the petitioner of a Pre-Dismissal Conference to be held in 
Wilson at 3:00 p.m. on November 15, 1995. 

116. The pre-dismissal conference took place as scheduled. 

117. The petitioner stipulated that he did not attend the conference because he was informed that it was 
departmental policy that no party could be represented by counsel at the conference. He did not wish to attend without either his 
father or his attorney appearing with him. 

118. On November 20, 1995, the respondent mailed the petitioner a dismissal letter, advising the petitioner that he 
was dismissed, effective immediately, for grossly inefficient job performance in the Donovan Ault file. 

119. The reasons for the petitioner's dismissal are set forth in the respondent's dismissal letter, which reads as 
follows: 

On September 7, 1995, according to your narrative entry, the parolee reported to 
you that his ex-girlfriend had him arrested for multiple charges. According to policy you 
failed to submit a DAPP-IB, "Offense Report" to the North Carolina Post Release 
Supervision and Parole Commission for each pending assault charge (AWDW 95 CR 4518 
and 4519) within thirty (30) calendar days; the deadline for which would have been October 
6, 1995. Additionally, after receiving information from the parolee and your brother, you 
not only failed to verify the reported pending charges, you also failed to determine if there 
were any other pending charges by utilizing all available resources which may include Clerk 
of Court Records, and NCIC (National Crime Information Center) criminal history check. 

Moreover, your failure to thoroughly investigate these charges or other possible 
criminal acts through all available resources, prevented you from discovering a third charge 
of Assault with a Deadly Weapon (95 CR 4517) which was made by Loomis Ray Spruill, Jr. 
against the parolee .... Additionally, your failure to follow the High Risk Supervision 
Level minimum requirement to conduct a collateral contact every thirty (30) days to 
determine possible criminal acts prevented you from discovering the Assault with the Deadly 
Weapon charge (95 CR 4517) made by Loomis Spruill. 

Consequently, the required DAPP-IB "Offense Report" was not provided by you to 
the North Carolina Post Release Supervision and Parole Commission pursuant to policy and 
procedures. . . . 

120. The petitioner did not receive any warnings prior to his dismissal. 

121. Prior to October 1, 1995, a career state employee could not be dismissed without warning for unsatisfactory 



1369 NORTH CAROLINA REGISTER January 15, 1998 12:14 



i 



{ 



I 



CONTESTED CASE DECISIONS 



job performance. 

122. A new rule adopted by the State Personnel Commission regarding grossly inefficient job performance took 
effect October 1, 1995. The rule allows career state employees to be dismissed without warning for grossly inefficient job 
performance. 

123. Prior to the date of his dismissal, the petitioner was not notified of the change in policy concerning dismissal 
for job performance without warning. 

124. In Chief P/PO Boyd's six years of experience as a P/PO and Chief P/PO, she was not aware of any other 
P/PO ever being disciplined for failing to file a DAPP-IB or failing to conduct collateral contacts. 

125. The investigation team initially recommended that I/O Brickhouse be issued a written warning for, among 
other things, his failure to file a DAPP-1 within the first five working days of parolee Ault's release. 

126. The investigation team initially recommended that Chief P/PO Boyd be issued a written warning for, among 
other things, her failure to thoroughly review Ault's case materials, her failure to take responsibility for the review of the case 
materials of parolee Ault semi-annually, and her failure to ensure that a DAPP-1 was completed and forwarded to Data Entry. 

127. The investigation team recommended that JDM Daniels receive a coaching/counseling session because, 
knowing of the lack of parole and supervisory experience of the following persons, he failed to provide supervisory support to 
Chief P/PO Fay Boyd and I/O Jimmy Brickhouse and he failed to take a more pro-active role in the supervision of the 
petitioner. 

128. The investigation team recommended that Mollie Kreuger be issued a written warning because in June, 1995, 
when Ault was arrested on the absconder warrant, Kreuger failed to follow procedure by requesting that the absconder warrant 
against Ault be rescinded. 

129. The investigation team concluded that Kreuger's violations of DAPP policy may have had an outcome on the 
disposition of Ault's parole status. 

130. After the decision was made to dismiss the petitioner, the investigative team interviewed Glen Mills, who was 
in the 1st Prosecutorial District's chain of command. 

131. After interviewing Mills, the investigative team changed its recommendations for disciplinary actions as to 
Chief P/PO Fay Boyd, who ultimately received only a coaching session, and 1/0 Jimmie Brickhouse, who also received only 
received a coaching session. 

132. In addition, Mollie Kreuger ultimately received no disciplinary action. 

133. Prior to the date of the hearing in this matter, the respondent had dismissed fifteen employees for grossly 
inefficient job performance, all of whom were (1) prison guards who fell asleep while on guard, (2) prison guards who allowed 
prisoners under their watch to interact with the public, (3) prison guards who physically assaulted inmates, (4) employees who 
directly damaged or committed malfeasance with state property or funds, (5) nurses who rendered improper medical care to 
inmates, or (6) a parole officer who, on at least 7 occasions over a four month period, repeatedly and intentionally ignored his 
supervisor's instructions to set up a parole file on and supervise a particular parolee. 

134. Prior to the date of the hearing of this matter, the respondent had disciplined for unsatisfactory job 
performance, not grossly inefficient job performance, a parole officer who completely failed to supervise a parolee who, after a 
period of almost two months with no parole supervision whatsoever, committed armed robbery and murder. 

CONCLUSIONS OF LAW 

1 . The petitioner is a career state employee subject to the State Persoimel Act. 

2. It is irrelevant that prior to being dismissed the petitioner did not know of the new rule allowing dismissal 
without warning for grossly inefficient job performance. The petitioner had no due process or contract right to be informed of 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1370 



CONTESTED CASE DECISIONS 



the new rule. 

3. The respondent may dismiss the petitioner only for just cause. 

4. Just cause includes grossly inefficient job performance. 

5. Dismissal for grossly inefficient job performance may occur without any prior disciplinary action. 

6. Grossly inefficient job performance is defined as "[a] type of unsatisfactory job performance that occurs in 
instances in which the employee: fails to satisfactorily perform job requirements as specified in the job description, work plan, 
or as directed by the management of the work unit or agency and that failure results in: (1) the creation of the potential for death 
or serious bodily injury to an employee(s) or to members of the public or to a person(s) over whom the employee has 
responsibility or (2) the loss of or damage to state property or funds that results in a serious impact on the State or work unit." 

7. Since the date of the adoption of the rule concerning "grossly inefficient job performance," the respondent has 
dismissed employees for "grossly inefficient job performance" only in situations in which an employee's failure to perform 
satisfactorily has been the direct or proximate cause of the potential for death or serious bodily injury. 

8. The Ault narrative summary does not indicate that the petitioner conducted any collateral contacts between 
August to October 13, 1995. However, the dismissal letter addressed the issue of collateral contacts as follows: 

You also failed to determine if there were any other pending charges by utilizing all 
available resources which may include Clerk of Court Records and NCIC (National Crime 
Information Center) criminal records check. Moreover, your failure to thoroughly 
investigate these charges or other possible criminal acts through all available resources 
prevented you from discovering a third charge of Assault with a Deadly Weapon (95 CR 
4517) which was made by Loomis Ray Spruill, Jr. against the parolee. . . . Additionally 
your failure to follow the High Risk Supervision Level minimum requirement to conduct a 
collateral contact every thirty (30) calendar days to determine possible criminal acts 
prevented you from discovering the Assault with the Deadly Weapon charge (95 CR 4517) 
made by Loomis Spruill. . . . 

The undisputed evidence is that the petitioner knew of 95 CR 4517 at the end of August, 1995. Therefore, despite the fact that 
the narrative summaries do not reflect any collateral contacts, any failure to conduct collateral contacts did not result in the 
creation of the potential for death or serious bodily injury because the undisputed evidence showed the petitioner knew all of the 
information which conducting collateral contacts would have revealed. Therefore, any failure by the petitioner to conduct 
collateral contacts was not the proximate cause of the Maryland State Trooper's death. 

9. Although the petitioner did not file DAPP-lB's on 95 CR 4818 and 4819, the petitioner set fonh reasonable 
explanations for his failure to do so. Therefore, this failure was not grossly inefficient job performance. However, the 
petitioner's failure to submit a DAPP-IB on 95 CR 4517 was a failure to satisfactorily perform job requirements as specified in 
his job description, work plan, or as directed by the management of the work unit or agency. 

10. The petitioner's failure to submit the DAPP-lB's on Ault's three pending charges did not result in the creation 
of the potential for death or serious bodily injury because there is no evidence that the Parole Commission would have revoked 
Ault's parole even had the petitioner filed the DAPP-lB's. To the contrary, the evidence was that even had the petitioner filed 
the DAPP-lBs, the Parole Commission would then have had discretion as to whether to request a PC-14. Once the PC-14 was 
returned , the Parole Commission would then have had discretion whether to issue a parole warrant. In addition, the testimony 
of the parole officer witnesses, including the petitioner, was that the Parole Commission did not issue parole warrants upon the 
filing of DAPP-lB's on misdemeanor charges. Moreover, the investigative team found that the failure to perform job 
requirements by several other employees, including Mollie Kreuger, Fay Boyd and Jimmie Brickhouse, may have directly 
affected Ault's parole status. The Parole Commission decisions to release Ault from incarceration on two separate occasions 
negate the causal connection between the petitioner's failure to act and the potential for death or serious bodily injury. 
Therefore, the petitioner's failures to file DAPP-lB's did not constitute grossly inefficient job performance. 

11. Since the petitioner was not grossly inefficient in his job performance, the respondent lacked just cause to 
dismiss the petitioner. 



1371 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



) 



RECOMMENDED DECISION 

It is recommended that the petitioner be reinstated to his position as Probation/Parole Officer, that the petitioner be 
awarded back pay from the date of his dismissal imtil payment of same by the respondent, and that the respondent reimburse the 
petitioner for his reasonable attorneys' fees in this contested case. 

NOTICE 

The State Personnel Commission will make the final decision in this matter. Each party has the right to file exceptions 
to this recommended decision with the State Personnel Commission. Each party has the right to present written arguments on 
the decision to the State Personnel Commission. 



This the 18"^ day of December, 1997. 



Robert Roosevelt Reilly, Jr. 
Administrative Law Judge 



) 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1372 



CONTESTED CASE DECISIONS 



STATE OF NORTH CAROLINA 
COL>TY OF VANCE 



IN THE OFFICE OF 

AJDMINTSTR.ATI\T HEARINGS 

96 OSP 0403 

96 OSP 0654 



PAMELA ROBINSON, 
Petitioner, 



N.C. DEPARTMENT OF CORRECTION 

Respondent. 



RECO.MMENT)ED DECISION 



This matter was heard before Administratne Law Judge Thomas R. West on No%ember 25. 26. and 27. 1996; Februan- 
24. 25. and 28. 1997. and March 6, 17. 18. 19. and 26. 1997. m Raleigh. North Carolina, At the close of the evidence, due to the 
Administrative Law Judge's impending resignation from that position, the parties consented on the record to Judge West being 
appointed, as a Temporan.- Administrative Law Judge pursuant to G, S. 7A-757 and retaining junsdiction of the contested case. 
Subsequently. Judge West was appointed by the Chief Administratne Law Judge to sene as the Temporan, Administratne Law- 
Judge in these contested cases. The Administratne Law Judge ordered that the parties submit proposed Findings of Fact and 
Conclusions of Law and written closing arguments within forty (40) days after receipt of the transcnpt of proceedings. On 
October 6. 1997. Judge West ordered that the filings were due on or before October 31. 1997. 

PROCEDURAL HISTORY 

Petitioner Pamela Robinson filed g^e^■ances with respondent Department of Correcuon on January 10 and 11. 1996, 
alleging that she had been subjected to sexual harassment by her super\isor Robert Terr,-. (AT)' On March 7. 1996. Alfonza 
Fullwood. respondent's EEO Manager, sent petitioner a letter stating that his office had conducted a thorough imestigation of 
petitioner's allegations. (A.2) The letter did not state the result of the in\estigation or indicate what decision or action 
respondent had taken The letter concluded "Should you disagree with oiu" decision and wish to appeal this action, you may file 
a petition for a contested case heanng pursuant to G S § 150B-23 with the Office of Administrative Heanngs." 

On March 15. 1996. James Fullwood. respondent's Second Judicial Dnision Chief, wrote petitioner to inform her that 
"It has been discerned that the findings of fact in the EEO investigation did not nse to the le\e\ of sexual harassment" (A. 3) In 
response, petitioner filed a petition for a contested case heanng by letter dated Apnl 3. 1996, which the Office of AdministraU% e 
Heanngs accepted on April 8. 1996. (A 4) 

On Ma> 15. 1996. respondent sent petitioner a letter informing her that she had been terminated, effectne Apnl 29, 
1996. (.A. 5) Petitioner filed a second petition for a contested case heanng on May 28. 1996. based on e\ents which occurred 
after the first petition, and mo\ed that the two cases be consolidated. (A. 6. A. 7) Petitioner's motion for consolidation was 
granted on August 8, 1996. (A.8) 

The contested case hearing began on No\ember 25. 1996 and concluded on March 26. 1997. after ten da>s of testimony. 

ISSUES 

1. Did Respondent subject Petitioner to se.xual harassment and deny her equal opportunity for employment because of her 
sex. in violation of N.C. Gen. St.\t. § 126-16. 



'The documents cited in the procedural history section are included under Tab A of petitioner's bench book, submitted on 
November 25, 1996. The individual documents are labeled A.l, A.2, etc. 

"Respondent identified Fulhvood's .March 7. 1996 letter as the "document constituting agency action" with respect to petitioner's 
initial petition. Document Constituting .Agency .Action (May 16, 1996). 



1373 



NORTH CAROLINA REGISTER 



January 15, 1998 



12:14 



CONTESTED CASE DECISIONS 



) 



) 



2. Did Respondent fail to take prompt and appropriate action to remedy Robert Terry's alleged acts of sexual harassment, 
in violation of N.C. Gen. Stat. § 126-16. 

3. Did Respondent retaliate against Petitioner for protesting alleged sexual harassment, in violation of N.C. Gen. Stat. § 
126-17. 

4. Did Respondent terminate Petitioner without just cause, in violation of N.C. Gen. Stat. § 126-35. 

APPEARANCES 

Petitioner: Burton Craige, Esq. 

Patterson, Harkavy and Lawrence, L.L.P. 
Post Office Box 27927 
Raleigh, North Carolma 2761 1 
(919)755-1812 

Respondent: Neil Dalton 

Assistant Attorney General 
N.C. Department of Justice 
Post Office Box 629 
Raleigh, North Carolma 27602 
(919)716-6500 

STATUTES. RULES & POLICIES IN ISSUE 

N.C. Gen. Stat. § 126-16; -17; -34.1; -35 

25NCAC 1D.0518 

25NCAC 1L.0102-.0104 

25NCAC 1C.0214 

N.C. Dep't of Correction, Personnel Manual 

Office of State Personnel, Personnel Manual 

BURDEN OF PROOF 

At the hearing, the burden of proving Petitioner was dismissed with just cause was placed on Respondent. The burden 
of proving discrimination and retaliation was placed on Petitioner. Prior to the issuance of this Recommended Decision, the 
Court of Appeals issued its opinion in Employment Security Commission of North Carolina \l William Peace (No. COA 94- 
1283, No. COA 95-678, Filed 2 December 1997). In ESC v. Peace , the Court of Appeals, with a dissent, assigns the burden of 
proof in a "just cause" case to the employee. Because of the uncertainty of the law on this point, the undersigned has analyzed 
the evidence by first assigning the burden of proof to one party and then to the other. After so doing, it is my conclusion, more 
fiilly stated below, that Respondent did not have "just cause" to terminate Petitioner's employment, regardless of which party has 
the burden of proof 

WITNESSES 

Petitioner presented the following witnesses: Petitioner, Arlinda Braswell, Angela Johnspn, Tonya Williams Lynn, 
Rhonda Steverson Howell (via videotape deposition), Dr John D. McWay, Dr. Anita Blosser, Judy Cash, Kyle Kilbom, Alfonza 
Fullwood, and Tim Robinson. 

Respondent presented the following witnesses: Petitioner, Robert Terry, James Fullwood, Evelyn Wooten, Kyle Kilbom, 
Debbie Babb, James Hayes, William Sinclair, Megan Betts, Essie Fields, Charles Worth, Arie Davis, Jo Williams, Dr. Robert 
Rollins, Mary Edith Watkins, and Dr. Amilda Home. 

EXHIBITS 

The following exhibits were offered and admitted into evidence by Petitioner: 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1374 



CONTESTED CASE DECISIONS 



PI Statement of Tonya Williams (8/8/86) 

P5 Inteniew summan- (1/10/95) 

P6 Employee performance actnity log (1 1/17/95) 

P8 Memo from Terry to Kilborn (1/4/96) 

P9 Statement by Anita Blosser. M D, (1/10/96) 

PI 1 PMS. Robinson (3/20/95-3/18/96) 

P13 PRM (coaching). Terry (4/10/96) 

P14 Memo from Williams to Kilborn (1/4/96) 

P15 Memo from Kilborn to Wooten (1/23/96) 

P16 PRM (interim). Robinson (9/20/95) 

P17 Letter from A Fulhvood to Robinson (3/7/96) 

PIS Memo from Kilborn to Robinson (3/14/96) 

P19 Letter from J Fullwood to Robinson (3/15/96) 

P20 EEO Case Prospectus (2/26/96) 

P2 1 Request for lea\e (3/1 8/96) 

P22 Letter from Robinson to Kilborn (3/2 1/96) 

P23 Letter from Wooten to Robinson (4/1/96) 

P24 Letter from J Fullwood to Robinson (4/18/96) 

P25 Letter from Craige to J Fulhvood (4/19/96) Not for the Truth of the Matter Asserted 

P26 Letter from Craige to J, Fulhvood (4/25/96) Not for the Truth of the Matter Asserted 

P27 Letter from Beck to Robinson (5/15/96) 

P28 Letter from Craige to Oguah (6/4/96) 

P29.1 Grievance (1/10/96) 

P29.2 Revised Gnevance (1/11/96) 

P31 1 Petitioner's Fourth Set of Interrogatones (10/22/96) 

P31 2 Respondent's Response to Petitioner's Fourth Set of Interrogatories (11/15/96) 

P33 Memo from Kilborn to Wooten 

P4 1 Human Relations in the Work Place (4/7/95) 

P43 Application for employment (2/7/95) 

P44 Resume (12/13/94) 

P47 Mary Edith Watkins. C.V. 

P49 Amilda Home. M.D.. C.V. 

P52 Medical records of John D. McWay. Ph.D. 

P53 Patient ledger of John D McWay. Ph.D. 

P56 Memorandum from Wooten to File (3/18/96) 

P57 Petitioner's drawing of Steno office 

P58 Video Deposition: Rhonda S. Howell 

P5 9 Robert Terry Personal Historv' Statement ( 1 /8/9 1 ) 

P60 Response to Discover.- (3/5/97) 

P60.1 Last page of P60 

P61 Response to Discover. (DOC's EEO Office Investigatory file) 

P62 Deposition (portions) of .Alfonza Fullwood 

P63 Memo from Gwen Sanders to .Alfonza Fulhvood (3/5/97) 

P64 Re-arranged 2/6/96 report 

P65 Response to Discover.- (3/5/97) 

The following exhibits were offered and admitted into evidence by Respondent: 

Rl Memorandum to Kyle Kilborn from Robert Terry. Jr regarding Discussion on Petitioner, dated January 4, 1996 

R2 Memorandum to Kyle Kilborn from Jo Williams regarding Petitioner, dated Januan 4, 1996 

R3 Memorandum to Evehn Wooten from Kyle Kilborn regarding Request for Instruction on Petitioner, dated 

Januarv 11. 1996 

R4 Letter to Petitioner from E\-elyn Wooten. dated January 1 1. 1996 

R6 Memorandum to File from Evehn Wooten regarding Petitioner, dated January 24, 1996 

R7 Memorandum to Robert Gu> from James R. Fullwood regarding Petitioner - Sexual Harassment, dated March 

R9 Memorandum to James Fullwood from Theodis Beck regarding Robert Terry Investigation, dated March 14, 



f 






5. 1996 



i 



1375 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



> 



1996 

Rl 1 Letter to Petitioner from James R. Fullwood. dated March 15, 1996 

R12 Letter to Deborah Babb from James R. Fullwood, dated March 15, 1996 

R13 Memorandum to the File from Evelyn Wooten regarding Sexual Harassment Grievance of Petitioner, dated 

March 18, 1996 
R14 Letter to Kyle Kilbom from Petitioner, dated March 21, 1996 

R15 Memorandum to Evelyn Wooten from Kyle Kilbom regarding Petitioner, dated March 25, 1996 
R16 Letter to Petitioner from Evelyn Wooten, dated April 1, 1996 
R17 Memorandum to Evelyn Wooten from Kyle Kilbom regarding Incident of 4/1/96, dated April 4, 1996 Not for 

the Truth of the Matter Asserted 
R19 Letter to Petitioner from James Fullwood, dated April 18, 1996 

R20 Memorandum to Robert Terry from Petitioner regardmg Billy Sinclair, dated April 27, 1995 
R22 Memorandum to Woodley Lee from Evelyn Wooten regarding Investigative Summary, dated May 2, 1996 
R24 Letter to Petitioner from Theodis Beck regarding Resignation Without Written Notice, dated May 15, 1996 
R25 Written Statement: Robert Terry, Jr., dated November 17, 1995 
R26 Memorandum to All Unit Staff from Robert Terry, Jr. regarding Staff Meeting Minutes (December 12, 1995), 

dated December 12, 1995 
R27 Memorandum to Gwen Sanders from Robert Terry, Jr. regarding Response to Allegation from Petitioner, dated 

January 25, 1996 
R29 Memorandum to Dan Lilly from James R. Fullwood regarding Sexual Harassment Training, dated April 17, 
1996 

R30 Memorandum to W. Larry Harris, Sr. from James R. Fullwood regarding Sexual Harassment Prevention 

Training, dated October 25, 1996 
R32 25 NCAC ID.0518: "Voluntary Resignation Without Notice" 
R33 N.C. Dep't of Correction, Personnel Manual: Se.xual Harassment Policy 
R35 N.C. Dep't of Correction Sexual Harassment: Policy and Complaint Procedure dated April 12, 1993 (signed by 

[former] Secretary of Correction, Franklin Freeman) 
R36 N.C. Office of State Personnel, Personnel Manual: Severance Salary Continuation/Transfer/ Travel 

Transportation Allowance and Reimbursement 
R37 Curriculum Vitae: Robert Rollins, M.D. 

R38 SEPARATE NOTEBOOK: Petitioner's Medical Records - Blosser/McWay/Home/Watkins 
R39 Memorandum to Robert Terry from Debbie Babb regarding Transfer, dated June 7, 1996 

Upon consideration of the documents filed in this matter, the testimony taken, and all relevant evidence, the undersigned 
makes the following: 

FINDINGS OF FACT 

1. Pamela Robinson ("petitioner") was bom on November 26, 1960 in Henderson, Vance County, North Carolina. 
(11:4)' 

2. Petitioner and her husband Tim Robinson have been married since December 1 1, 1982. (11:4) 

3. Petitioner lives in Henderson, North Carolina. (11:4) 

4. On May I, 1991, petitioner was hired by the State of North Carolina, Administrative Office of the Courts, as a 
deputy clerk in the office of the clerk of Superior Court in Vance County. (11:6; PX43) 

5. In December 1994. the Department of Correction's Division of Adult Probation and Parole ("DAPP") 
announced a Stenographer III opening in Vance County. (PX5) Because the hours of the DAPP position were more compatible 
with petitioner's child care responsibilities, she applied for the job. (11:7) 



) 



'"11:4" refers to Volume II, page 4 of the hearing transcript. "PX " refers to petitioner's exhibits. 

"RX " refers to respondent's exhibits. 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1376 



CONTESTED CASE DECISIONS 



6 When petitioner worked in the Vance Count) clerk's office, she had frequent interaction with DAPP 
employees (II 8) DAPP employees obsened that petitioner always acted in a professional and courteous manner and was 
efficient in performing her duties^ (X: 146 (Jo Williams); II: 1 14 (Angela Johnson)) 

7 Petitioner was interMcwed for the Stenographer III position on Januan, 10, 1995 (PX5) The interview 
committee consisted of Kyle Kilborn. Judicial Distnct Manager. Jo Williams. Chief Probation and Parole Officer ("CPPO") in 
Vance County, and Robert Tern, CPPO in Warren and Vance counties (11:8-9. PX5) 

8. The inter\ lew committee ranked petitioner as the "top candidate" for the job. (111:72; PX5) The official 
interview summan, prepared by Kilbom, noted that petitioner "is well respected in the Clerk's office and with the DAPP, 
because of her willingness to go the extra mile to assist our staff," that petitioner's most recent performance ratings in the clerks 
office v\ere in the "Ven- Good" range, and that she performed at the "Outstanding" Ie\el in her interview. (PX5) 

9. After receiving approval from his supenors. Kilbom offered the job to petitioner, and she accepted it. (111:73) 

10 Petitioner began her employment with DAPP on March 20, 1995. (11:10; PX16) 

11 Petitioner worked in the DAPP office in Henderson. (PX16) Her supervisor was Robert Terr>', CPPO for 
Warren and Vance counties. (11:9-10) Petitioner's duties were to perform secretarial tasks for Terry and for the probation and 
parole officers ("PPO's") that Tern- supenised (11:9) 

12 Terry reported to Kilbom, Judicial Distnct Manager (111:68) Kilbom reported to Evelyn Wooten, Assistant 
Judicial Division Chief (111:66; V: 146) Wooten reported to James R. Fullwood. Judicial Division Chief (V:146) Fullwood 
reported to Woodley Lee, Assistant to the Deputy Director of DAPP (111:67) Lee reported to Robert Guy, Deputy Director for 
Operations of DAPP. (111:67) Guy reported to Theodis Beck, Director of DAPP. (111:67; V: 147; see X: 156) 

13 Petitioner was one of two stenographers assigned to work in the Vance Countv' DAPP office. The other 
stenographer. Karen Lilly, performed secretarial tasks for the other CPPO. Jo Williams, and for probation officers working under 
Williams' supervision. (11:9-10) Both stenographers worked in the same room (11:13-14) The two stenographers' work stations 
were no more than five feet apart. (Ill: 108) 

14. In April 1995, about two weeks after petitioner started working at DAPP, Lilly resigned (II: 14) Lilly was not 
replaced until August 1995. (11: 14; IV: 195) During that time, petitioner worked as the only stenographer in the office (II: 15) 
She performed secretanal duties not only for Terry and the PPO's working under his supervision, but also for Williams and the 
PPO's in Williams' unit. (11:14-15) 

A. TERRY'S ACTS OF HARASSMENT 

15. After Lilly left. Terrv's conduct around petitioner changed (11: 15) Terrv' would pull up the other 
stenographer's chair beside petitioner, and would rub his leg against her leg, or his arm against her arm (11:15) At first, 
petitioner thought that the touching may have been an honest mistake. (11:16) Petitioner initially responded to the physical 
contact by sliding her chair away from Terr.-, or standing up and moving away, without saying anything (11: 15-16) When the 
conduct continued, petitioner told Tern to move away, saying: "Give me some space," or "Robert, you're too close, slide over a 
little bit," or "Move over, you're crowding me" (11:16) Terry would move away for the moment, but then, after several days 
passed, would do it again. (11: 16) These touching incidents happened at least five times. (IX: 18) 

16 In the beginning of the summer of 1995. petitioner went to Warren County to get some work from Terry 

(11:16; PX29 2, & 1 1) As she was leaving, a man approached Terry on the sidewalk in front of the probation office. (IIT6) 
After the man left. Terry walked over to petitioner and said: "Oh, he didn't want anything, he just wanted to know who the white 
female was, and if we had something going on " (11:17) 



17. On several occasions. Terry told petitioner that; "McCafflty, Hayes and Sinclair think we're having an affair.' 

(11:17) Thomas McCaffity. James Hayes, and Billy Sinclair were PPO's in Vance and Warren counties (11:17; PX29 2, & 8) 
When Terry made this remark to pent. oner, she told him, "Robert, I don't know where they would have gotten an idea like that ' 
(II: 18) Petitioner did not believe tn:t any of these men thought such a thing, nor that they had told anyone that they held the 
opimon Terry ascribed to them. (11 U ) Petitioner found Tern's remarks to be degrading, humiliating and inappropriate. (II 1 



i 



1377 NORTl I :AR0LINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



PX29.2, & 8) 

18. In June 1995, PPO Angela Johnson, Terry and petitioner were in the steno office. (II: 18) Terry was seated at 
the other stenographer s desk. (II: 18) Terry called petitioner over to the desk and said: "You know, I had a dream last night." 
Pointing at petitioner, Terry said: "It was about you." (11:19) Terry continued: "I can't say what it was about, because it might 
get me into trouble." (11:19) Terry's remark upset petitioner. (11:19; PX29.2, & 9) In light of Terry's previous conduct B ie, his 
references to affairs and his conduct in brushing up against her B petitioner interpreted Terry's comment about the dream as 
having a sexual connotation. (II: 19) 

19. In late July 1995, petitioner was in her office, making copies at the copier. (11:20,24) Terry was sitting at the 
other stenographer's desk. (11:20) Terry mentioned a computer class in Raleigh that petitioner was going to attend the following 
week. (11:20) Terry said: "Well, you know, you can spend the mght over there. Since you are going to a two-day class, the State 
will pay you back." (11:20) Petitioner said: "No, I didn't know that." (11:20) Terry said: "Well, you ought to go over there and 
spend the night." (11:20) Petitioner said that since Judy Cash, Kilbom's secretary, was not going, petitioner would not stay 
overnight, but instead would take the state car and dnve both days. (11:20) Terry then called petitioner by name, looked her in 
the eye and said: "Why don't >ou go o\er there and spend the night, and I'm going to come o\er there and spend the night with 
you." (11:20-21) Petitioner looked at Teny and said "Let me check with Tim [her husband] and see what he thinks about that." 
(11:21) Petitioner then walked out of the room, went to the bathroom, cried and felt nauseated. (11:21) Petitioner did not want to 
go back to her office, but knew she must because she was the only stenographer there. (11:21) When she returned from the 
bathroom, Terry was still there (11:21) Petitioner continued to make copies, without looking at Terry. (11:21) She was still very 
upset and humiliated. (11:21) Then Terry said, "Well, I guess I'll go back to Warren County since you're not going to let me 
spend the night with you at the hotel." (11:21) Terry then left the office (11:22) 

20. Evelyn Wooten, Assistant Judicial Division Chief, has attended and led se.xual harassment seminars for DOC 
employees. (IX: 189) The main purpose of the seminars is to help employees understand what sexual harassment means. 
(IX: 189) Wooten testified that the incident described by petitioner in paragraph 19 above would, if it occurred, likely constitute 
sexual harassment. (1X193) 

21. After Terry left the office, petitioner telephoned her friend Kim Christopher and asked her to come to the office 
because petitioner needed to speak with her. (11:22) Christopher came to petitioner's office within an hour. (11:22) Petitioner 
told Christopher that Terry had propositioned her and proposed that he spend the night with her in a hotel room. (11:22) 
Petitioner was crying and shaking when she spoke with Chnstopher (11:23) Christopher told petitioner she should tell her 
husband. (11:23) Petitioner told Chnstopher that she could not tell her husband because she was afraid that he would hurt Terry 
and get in trouble. (11:23) 

22. After talking with Christopher, petitioner called Angela Johnson at home. (11:23) Johnson, a PPO, was on 
vacation that week. (11:23) Petitioner asked Johnson if she (petitioner) could see Johnson after work. (11:23) When petitioner 
got oS"work, she went to Johnson's apartment and told her what Terr\' had said. (11:23-24) When petitioner spoke with Johnson, 
she was upset and crying. (11:24; II: 117) 

23. The conversation with Terry occurred on a Thursday or Friday at the end of July. (11:24) The computer class 
was scheduled on August 1 and 2, the following Tuesday and Wednesday. (Id.) 

24. On Monday evening, July 31, petitioner reported the incident to Dr. Jack McWay, her psychologist. (11:25; 
111:30) Dr McWay immediately called a local attorney to ask for legal advice. (11:27; 111:3 1) Dr. McWay told Robinson that the 
attorney ad%ised that she file a complaint with the department. (11:27) Petitioner told Dr. McWay that she was reluctant to do so 
(11:27-28) She explained that she was a new employee, still on probation, and that Terry had been working for DAPP for many 
years. (11:27-28) Under those circumstances, petitioner had doubts whether the State would protect her. (11:28) In addition, she 
knew that if she filed a complaint, her husband would have to be told. (11:28) Petitioner was afraid to tell her husband because 
he would make her quit a job she needed and liked, and because he might do something to Terry that would get her husband into 
trouble. (11:24-25, 28; PX29. 1, & 7) 

25. Petitioner attended the seminar in Raleigh on August 1 and 2. (11:28; PX29.2, & 3) Petitioner drove the state 
car both days, and did not spend the night in Raleigh. (11:28) 

26. On Thursday morning, August 3, petitioner told PPO Scott Brewer about Terry's proposition. (11:29) 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1378 



CONTESTED CASE DECISIONS 



27 On Sunday night. August 6. petitioner woke up in severe abdominal pain and was admitted to Mana Parham 

Hospital in Henderson (1130) The hospital staff found that petitioner had a fe\er and an elevated white count, but were unable 
to identify a physical cause for petitioner's symptoms. (II 31) She was discharged from the hospital after two days. (11:31) 

28. When petitioner returned to work later that week, she confronted Terry (11:31) Terr.- and petitioner were 
alone in the stenographers office. (11:3 1-32) Petitioner said: "Robert, 1 don't like what you said to me the other day. It didn't 
make me feel good, and 1 don't appreciate It " (11:32) Terry said: "I'm sorry," and walked away. (11:32) 

29. Later in August 1995, petitioner ate lunch at Skipper's Restaurant in Henderson with Angela Johnson, Kim 
Christopher and PPO Arlinda Braswell (11:32) Braswell told petitioner that when she worked for the Community Service Work 
Program, Terrv told her that he had a sexual dream about her. (11:33, 57) Braswell said that Terry's remark had upset her. 
(11:33) 

30 The incident that Braswell described at the lunch at Skipper's occurred in approximately May 1995. (1: 143) At 

that time, Braswell was employed by Crime Control and Public Safety in the Community Service Work Program. (1:134) As 
coordinator for the program for Vance and Warren counties, Braswell arranged jobs for cnminal offenders so that they could pay 
back for the crimes they had committed (1: 136) Brasw ell's job required her to ha\e frequent interaction with PPO's, including 
Terry (1: 136-37, 138-39) In Warren County, the Community Service office and the DAPP office were in the same building on 
the same floor. (1: 138) One morning m Warren County, Terry called Braswell into his office. (1: 139-40) Terry told Braswell 
that he had had a dream about her, in which he and Braswell "were making love." (1:140) At the time he made the remark, 
Terry was sitting behind his desk, and Braswell was sitting in front of the desk. (1:141) She laughed nervously when he made 
the remark. (1:141) Terrv said: "Do you find that to be funny?" (1:141) Braswell said she did not find it to be funny. (1:142) 
Terrv then said: "You're not going to tell anybody; you're not going to say anylhing." (1:142) Braswell said: "Well, no," got up 
and walked out of the room (1: 142) Terrv's statement about the dream scared Braswell. (1: 141) 

31. Braswell was born on September 15, 1970 (1:136) After graduating from J F. Webb Senior High School in 
Oxford, she attended Fayetteville State University, where she obtained a B A. degree in sociology, with a minor in cnminal 
justice (1:135) Braswell began working for Community Services in April 1994. (1:134) She was mamed in September 1994. 
(1:136) On August 28, 1995, Braswell transferred from the Community Service Work Program to the DAPP office in Vance 
County, where she worked as a PPO (1:134. 143-44) At the time she testified at the hearing, Braswell was working under Jo 
Williams' supervision. (1:133-34) Braswell has contact with Terry on a day-to-day basis and reports to him when Williams is 
not in the office. (1:147) 

32. At the hearing, Terry denied having a conversation with Braswell about any kind of dream, particularly a 
se.xual dream (IX 161-62) Terrv's testimony conflicts directly with Braswell's. The Administrative Law Judge ("ALJ") credits 
Braswell's testimony, and does not credit Terry 's denials In resolving the issue of credibility, the ALJ considered the demeanor 
of the witnesses, Braswell's contemporaneous report about the incident to co-workers, the absence of any motive for Braswell to 
provide false information to her co-workers, and the absence of any motive for Braswell to testify' falsely in fa\or of petitioner and 
against her current emplover 

33. In early August 1995, Debbie Babb was hired to fill the second stenographer's position in the Vance County 
DAPP office. (11:34) 

34. After Babb arrived, Terrv- called petitioner back to his office more frequently. (11:34) When he called 
petitioner to his office, he would either close the door, or ask petitioner to close the door. (11:34) In his office, he continued to 
touch petitioner and brush up against her. (11:34) He again told petitioner that McCaffity or Hayes or Sinclair thought that 
petitioner and Terrv were having an aff'air (11:35) Petitioner did not believe that any of those men thought such a thing, and 
found Terrv's statement to be degrading and upsetting. (11:35) Terry, who is a minister, sometimes told petitioner about men or 
women in his church who reported their sexual problems to him. (11:35) Petitioner told Terry that he should not be telling her 
these things. (11:35) 

35. Petitioner's normal working hours were from 8:00 a.m. to 5:00 p m (11:56) Occasionally, petitioner was asked 
to stay after 5:00 p m. (11:56) After Terry asked petitioner to spend the night with him in Raleigh, petitioner and Angela 
Johnson took steps to ensure that petitioner would not be left alone with Terrv. (11:56) When petitioner was required to work 
late, Johnson stayed in the office so that petitioner would not be alone. (11:56-57; II: 120-21) 

36. In a conversation with Terrv in early September 1995, petitioner mentioned Dave Farmer, who had supervised 



1379 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



petitioner when she worked at the federal prison in Butner. (11:35, PX29.2, & 12) Terry asked petitioner: "Did you give it to 
Dave''" (11:36) Petitioner said: "Excuse me?" (11:36) Terry repeated the question and then said: "What's wrong, does that 
upset you?" (11:36) Petitioner said: "What do you think''" (11:36) Fanner was someone petitioner respected very much. (11:36) 
She had never had any kind of intimate relationship with Farmer. (11:36) Petitioner found Terry's questions about Farmer to be 
degrading and humiliating. (11:36) After Terry made the remarks, petitioner went to the bathroom and cried. (11:36) Petitioner 
reported Terry's remarks about Fanner to Angela Johnson soon after the incident. (II: 1 19-20) 

37. Woolen testified that the incident described by petitioner in paragraph 36 above would, if it occurred, likely 
constitute sexual harassment. (IX: 193) 

38. In May 1995, petitioner began to see Dr Anita Blosser, a family practitioner, as her 
primary care physician. (VI:2-3, 5) Dr. Blosser treated petitioner for migraine headaches. (VI:6) 

39. Terry's repeated sexual comments caused petitioner to experience increasing stress, anxiety and headaches, and 
triggered memories of se.xual abuse she had expenenced as a child. (11:21. 36-37; VI:27-28) 

40. Petitioner last saw psychologist Dr. Jack McWay on September 6, 1995. (111:32) In the course of an office visit 
with Dr. Blosser on September 22, 1995, petitioner told Dr. Blosser that someone was making sexual advances to her at work. 
(VI:6, 8-9) Dr. Blosser refened petitioner to an expenenced female psychotherapist, Mary Edith Walkins. (VI:7-8) Petitioner 
began seeing Watkins for psychotherapy on October 2, 1995. (IV:4) 

41. On November 8, 1995, following a refenal by Dr. Blosser, petitioner saw Dr. Amilda Home, a psychiatrist, for 
a psychiatric evaluation. (11:39; PX55) Dr. Home made a tentative diagnosis of bipolar disorder, manifested by mild hypomania 
and depressive episodes, and Post Traumatic Stress Disorder (PTSD) related to sexual abuse petitioner experienced as a child. 
(11:39-40; V:18, 23; PX55) Bipolar disorder is a chemical imbalance, usually genetic, that results in mood swings. (IV:7, 9; 
V: 19-22) In consultation with Dr. Home, Dr. Blosser initiated a regimen of medication to treat the bipolar disorder. (VI: 12-15) 

42. Because of increasing headaches and anxiety, and the need for medical treatment, petitioner was absent from 
work with frequency in the fall of 1995. (11:40-41; PX29. 1, & 13) At a meeting in Terry's office, petitioner told Terry that her 
absences were related to a problem of abuse she had experienced when she was a child (11:41) Terry asked petitioner what kind 
of abuse. (11:41) Petitioner told him she would rather not say. (11:41) Terry asked her again. (11:41) Crying, petitioner told 
him that her stepfather had sexually abused her. (11:41) Terry then asked, "What did your stepfather do? Your stepfather, did he 
ever penetrate you?" (1142) Petitioner got up and walked out of the room in tears. (11:42) Petitioner was disgusted and upset 
that Terry had asked the details of the sexual abuse. (11:42) Soon after the incident, petitioner told Kim Christopher and Angela 
Johnson about it. (11:42) When she told Johnson, Johnson saw that petitioner was upset and angry. (1: 120) 

43. After her meeting with Terry, petitioner initiated a meeting with Kilbom and Terry to discuss her medical 
condition. (11:43-44) The meeting occuned on November 17. 1995 in the Vance County office. (PX6) Petitioner told Kilbom 
that she was ready to resign. (11:44) Kilbom said he did not want her to resign and that she was a good employee who had done 
a good job for the office. (11:45) Petitioner informed Kilbom and Terry that she was getting new medications to deal with her 
bipolar disorder and some time would be required to adjust the medications and achie\e a proper dose with minimal side effects. 
(11:45-46) Petitioner had recently been started on lithium, which caused some anxiety, difficulty in concentration, and a hand 
tremor. (11:46) Kilbom and Terry agreed they would try to accommodate her by gi\ ing her a lesser work load during the period 
that the medications were being adjusted. (11:45-46; PX6 at 1 (Terry: "JDM [Kilbom] and I agreed to give her a lesser work 
load")) 

44. At the November 17 meeting. Kilbom told petitioner that her medical problem would be reflected in her 
performance evaluation. (11:45; III: 126) Terry's handwntten record of the meeting states: "Pam was instracted by the JDM that 
her Performance Appraisal would reflect the work situation, but would be given an explanation to sickness. " (PX6 at 2) Terry 
testified that his statement meant that although petitioner's performance appraisal may indicate some decline in performance, the 
appraisal would include an explanation that the decline resulted from her medical situation. (XII:43) 

45. In the weeks following the November 17 meeting, Terry did not follow the plan (11:46) Instead of giving 
petitioner less work, Terry gave her more (11:47) Terry made himself unavailable to answer petitioner's questions about work. 
(11:47) Terry now rejected work he had previously accepted, even though petitioner was doing the work in the same way that she 
had done it before. (11:47) 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1380 



CONTESTED CASE DECISIONS 



46. Beginning in mid-December, Debbie Babb was out of work for a week with pneumonia. (11:47) During that 
week, petitioner did the work for both units (11:47) E\erv- night she went home with severe headaches. (11:48) At the end of 
the week, Tern, told petitioner that he had intentionally created e.xtra stress and e.xtra work just to see if she could handle it, and 
said that she had done a good job (11:48) 

47. Petitioner took her \acation dunng the week of Christmas through the New Year. (11:49; PX7, & 1) She 
returned to work on January 2, 1996. (11:50) 

48. Near the end of the day on January 3, 1996. Terry gave petitioner a memorandum to type. (11:50) Tern sat at 
Debbie Babb's desk while petitioner typed the memo. (11:50-51) Petitioner completed the memo and left the office at 5:00 p.m. 
to take the office mail. (11:50-51) 

49. On January 4 at about 8:20 am . Terry called petitioner from the Warren County office. (11:51, PX29.2 at 5) 
Terry asked petitioner if she had recei\ed a fa.x at 4:38 p.m the previous afternoon. (11:51) Petitioner responded that she had not 
seen a fax, because she was busy typing a memo for him. (11:51) Terry complained that she had not passed on information to 
him about a report that was to be submitted to Kilbom's office. (11:5 1-52) Tern' spoke to petitioner in a way she considered to 
be sarcastic and belittling and repeatedly said: "Maybe you just don't care about these reports." (11:52) Finally, Robinson said: 
"You're right, I don't care. " and hung up. (11:52) 

50 Judy Cash, secretary to the Judicial District Manager in Louisburg, frequently interacted with other 

stenographers in the judicial distnct (111:141) Cash was responsible for communicating with stenographers about the various 
reports that need to be sent from the field office to the district office. (111:141) Cash communicated with the stenographers to 
ensure that the reports were done properly, and submitted in a timely fashion. (111:141-42) Cash was also responsible for 
communicating information about policies and procedures that applied to stenographers in the distnct. (Ill: 142) 

51. Cash had continuing contact with petitioner from the time petitioner started working as a stenographer in 
Vance County (III: 142-43) When petitioner worked in the DAPP office in Vance County, Cash found her to be a very efficient 
stenographer. (111:144) The quality of her work was good. (111:144) Petitioner was dependable, responsive to Cash's requests, 
and beha\ed in a professional manner. (111:144) Cash testified that she had no problems with the timeliness of reports that 
petitioner submitted. (111:144, 152-54) 

52. Cash had regular contact with the CPPO's in the distnct through telephone communications, monthly staff 
meetings, and their \isits to the Louisburg office to pick up supplies. (111:145) Cash conversed with the CPPO's about any 
problem within her area of responsibility, including reports and other papenvork that the distnct office required. (111:145) 
Dunng petitioner's tenure in Vance County. Terr\- expressed no dissatisfaction to Cash about petitioner's performance. (Ill: 145) 

53 In the telephone call to petitioner on Januan.- 4. 1996, Terry complained that the quarterly OSHA 200 report 

was overdue. (IX: 120; PX14) That report was not due until January 15, 1996. (Ill: 153-54) 

54. At about 9:00 a.m. on Januarv' 4. Terry came to petitioner's office and instructed her to go across the hall to a 
meeting room. (11:52) Jo Williams was m the room. (11:52) Terry told petitioner he was writing her up for insubordination 
because she hung up on him. (11:52) Petitioner was upset and crying. (11:53; PX29.2 at 5) Her hands were shaking due to a 
recent change in her medication. (11:53; PX29.2 at 5) A headache she had had for a couple of days had worsened after the 
telephone call from Tern . (PX29 2 at 5) Petitioner said. "I'm doing the best that I can nght now." (11:53) Petitioner told Terry 
that she had a bad headache and that her hands were shaking due to her medicine. (PX29.2 at 5) Terry told petitioner that if she 
did not think she could do her job. she needed to quit. (11:53) When petitioner started to say something. Tern asked: "Is that 
your statement'' Is that your statement''" (11:53) Petitioner responded: "No, I'm not making a statement. I don't want to make 
any kind of statement until I speak to my husband and my doctor" (11:53) Petitioner then walked out of the meeting. (11:54) 

55. At about 9:35 a.m., petitioner attempted to sign out for lunch to see her doctor. (11:54) Terr.' told her that she 
could not sign out for lunch so early in the morning (11:54) Tern' said she needed to fill out a leave slip to see her doctor. 
(11:54) Petitioner filled out a medical leave slip and Tern- signed it (11:54) 

56. Petitioner left the office and went to see her therapist, Mary Edith Watkins, and then her physician. Dr. 
Blosser. (11:54; IV:66; VI: 17) Ms. Watkins and Dr. Blosser saw that petitioner was extremely upset. (IV:65; VI: 17) Dr. Blosser 
determined that it would be medically contraindicatcd for petitioner to return to work that week, delivered a note to Terry 
requesting that petitioner be gi\'en medical leave on Januan 4 and 5, and scheduled a follow-up \'isit on Monday, Januan' 8, 



1381 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



1996. (VI: 17-18) Petitioner took medicalleave until then. (11:55) 

57. On January 4, after seeing Ms. Watkins and Dr. Blosser, petitioner told her husband for the first time about the 
sexual harassment she had experienced at work (11:55) She perceived that Terry had gone from sex'ually harassmg her to 
mentally harassing her (11:55; IX:39), and that Terry was punishing her for not giving in to him sexually. (11:55) On January 4, 
she reached the point where she could not tolerate the situation any longer. (IX:39) 

58. After petitioner told her husband, they agreed that petitioner needed to contact Kilbom. (11:57-58) Because 
petitioner was too upset to talk, Mr. Robinson called Kilbom on her behalf (11:58) He told Kilbom that Terry had been sexually 
harassing his wife, and that she wanted to file a complaint about it. (11:58; 111:89) 

59. Petitioner's January 8 appointment with Dr. Blosser was canceled because of snow and ice, and rescheduled for 
Wednesday, January 10. (PX29.2) On January 10, petifioner saw Dr. Blosser. (PX54; VI:21-22) Dr. Blosser determined that 
continuing to work in the presence of the man who had harassed her would worsen pefifioner's psychological condition. (11:61- 
62) Blosser wrote a letter "to whom it may concern," dated January 10, 1996 (Vl:22; PX9) The letter stated that "Ms. Robinson 
is being treated for post-traumatic stress disorder and at this point in her progress suffers from significant an.xiety." (PX9) 
Blosser wrote that petitioner's "condition would be worsened and we would lose ground already gained if the patient is required 
to continue confronting the party who is accused of sexual harassment." (PX9) Specifically, Blosser stated that petitioner 
"should not be required to work in the presence of this person unless or until the grievance is resolved." (PX9) Dr. Blosser 
invited the reader to contact her "[i]f fiirther information is required." (PX9) 

60. On January 10, Kilbom called petitioner at home and told her that she needed to file a written grievance that 
day. (11:58-59; VI: 168) Kilbom said that his supenor Evelyn Wooten was in his office, that she wanted to see the grievance 
before she left and that petitioner should bring the gnevance to Louisburg within two hours. (11:59; PX29. 1 at 1) 

61. On January 10, 1996, petitioner typed a four-page single-spaced statement titled "Grievance: Hostile Work 
Environment and Sexual Harassment in the Workplace Against Robert Terry, Jr." (PX29,1) The grievance describes in detail 
specific acts of harassment, and also describes events that occurred on the moming of January 4, 1996. (PX29.1) Petitioner 
delivered the wntten gnevance to Kilbom and Wooten on January 10, along with Blosser's letter stating that it would be 
medically contraindicated for petitioner to work in Terry's presence. (11:59-60, 63; 111:90-91) 

62. On January 11, 1996, petitioner completed a more detailed version of the grievance, which she delivered to 
Kilbom a few days later. (11:60-61; PX29.2) 

63. Before petitioner submitted her grievance on January 10, Wooten had never received any complaints about 
petitioner's performance. (V:183) On January 11, one day after petitioner submitted her grievance, Kilbom sent a 
memorandum to Wooten containing numerous complaints about petitioner's performance. (V: 183-84; RX3) Kilbom's 
memorandum stated that petitioner had been experiencing "performance problems due to emotional problems since 6/14/95." 
(RX3) 

64. Kilbom's January 11, 1996 Memorandum, asserting that petitioner had e.xperienced performance problems 
"since 6/14/95," is inconsistent with other evidence in the record, which establishes that petitioner had no performance problems 
during the first six months of her employment. After petitioner had been employed in the DAPP office in Vance County for six 
months, Terry conducted an interim performance evaluation, covering the period from March 20, 1995 through September 20, 
1995. (PX16) The purpose of the interim performance evaluation is to summarize the employee's performance during the 
preceding six months, and to identify any significant concems and problems so that they can be remedied in the future. (VI: 199) 
Petitioner's interim performance e\aluation. wntten by Terry and approved by Kilbom, indicates that during petitioner's first six 
months of employment, her performance was "very good." (PX16) Terry testified that he was "completely satisfied" with 
petitioner's performance dunng the first six months of her employment. (X:85) 

65. According to Kilbom, if a supervisor has a significant problem with a subordinate, the problem should be 
documented. CVl: 196-97, 201-02) 

66. Terry testified that his practice was to document any serious concems about an employee=s performance. 
(X:85) 

67. After reviewing petitioner's personnel file, Terry was unable to identify a single contemporaneous document 
12:14 NORTH CAROLINA REGISTER January 15, 1998 1382 



CON I ESI tU CASE DECISIONS 



reflecting any concerns about petitioner's performance from September 20. 1995 to November 17, 1995. (X: 101) 

68. Between November 17, 1995 and January 4, 1996, Tern did not talk to petitioner about any problems with her 
performance. (X:113) Kilborn heard nothing between November 17, 1995 and Januan,- 4, 1996 about any problems with 
petitioner's performance (Xll:49) After reviewing petitioner's personnel file, Terr)- was unable to identify a single 
contemporaneous document reflecting any concerns about petitioner's performance between November 17, 1995 and January 4, 
1996. (X:101-02) 

B. THE STATE'S RESPONSE TO PETITIONER'S GRIEVANCE 

1. Reassignment to Louisburg 

69. On Januar> 11. 1996, Wooten briefed Theodis Beck, Director of DAPP, about petitioner's grievance. (V:153) 
Beck ordered that petitioner be temporarily reassigned to the Judicial Distnct Manager's office in Louisburg. to work under 
Kilborn's supervision. (V;153; X:188) 

70 On Januan. 17. Judy Cash, secretan,- to Kilborn, telephoned petitioner at home. (11:64) Cash read petitioner a 

letter from Wooten, instructing petitioner to report to the office in Louisburg for a temporal^- "special project assignment." 
(RX4;'V: 160) Petitioner reported to work the following day. (11:65, 67) Because of snow and bad weather, petitioner did not 
recene the letter from Wooten, dated January 11, 1996, until after she had started working in Louisburg. (11:64-65) 

71. Petitioner's home is 4 miles from the DAPP office in Vance Counfy. (11:65) The Louisburg office is 25 miles 
from petitioner's home. (11:65) The dn\e from petitioner's home to the Louisburg office took approximately 35 minutes. (11:66) 

72. As CPPO, Terr.' was responsible for Warren and Vance counties. (11:66) Terry- lives in Warren County, about 
3.5 miles from the DAPP office in Warrenton, and 17 or 18 miles from the DAPP office in Henderson. (IX:188-89) 

73. During petitioner's reassignment to the office in Louisburg, Terr> continued to work in Warren and Vance 
counties. (11:66) 

74. The State did not offer to reimburse petitioner for the additional time or mileage required for her to work in 
Louisburg instead of Henderson. (11:66) 

75. The permanent staff in the Louisburg office consisted of Kilborn and his secretan.- Judy Cash. (11:67) 
Petitioner worked in the same office as Cash, assisting her with t>ping, filing, putting forms on the computer, and answering the 
phone. (11:67, 111:146) 

76. Although petitioner enjoyed the work in Louisburg. the assignment was inconvenient because of the distance 
from her home. (11:68-69; IX:71-72) The traffic on the road between Louisburg and Henderson sometimes made it difficult for 
her to pick up her son from day care by 6:00 p.m. (11:69) Petitioner was unable to do personal business during the lunch hour, as 
she had done when she worked in Henderson. (11:65-66, 69) 

77. Petitioner worked in Louisburg from Januan,- 18, 1996 until March 18, 1996. (11:64, 76) Kilborn testified that 
petitioner performed all the tasks he asked her to do while she was in Louisburg (111:94) Petitioner came to work on time, was 
polite and personable in the office, got along well with Kilborn and Cash, and performed her duties in a professional manner. 
(111:94) At the end of her employment there. Kilborn told her that he was grateful for her assistance. (111:94-95) 

78. Cash testified that petitioner was helpful, cooperative, and reliable dunng the two months she worked in 
Louisburg. (111:147) There were no problems with her attendance and she was not tardy to work. (111:147) Cash described 
petitioner as "a team player." (Ill: 147) 

2. Investigation 

79. On Januan, 11, 1996, Wooten came to Raleigh to meet with Theodis Beck, Director of DAPP, Robert Guy, 
Deputy Director, and Woodley Lee, Assistant to the Deputy- Director, to discuss petitioner's allegations. (X: 159) Beck decided 
that petitioner's allegations would be in\estigated by the Equal Employment Opportunity (EEO) Office of DOC, under the 
direction of Alfonza Fullwood. manager of the EEO Office. (X: 159-60) Petitioner would be temporarily reassigned to the 



1383 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



Judicial District Office pending the outcome of the EEO investigation. (111:93; V; 153) 

80. In the Department of Correction (DOC), employee grievances are either investigated internally, within the 
division where the individual is employed, or by the EEO Oifice. (XI;30-31) According to James Fullwood, the reason 
petitioner's grievance was assigned to the EEO Office was that senior DAPP officials "wanted an independent, third party" to 
conduct the investigation. (XI : 3 1 ) 

81. Alfonza Fullwood, Manager of the EEO Office, and James Fullwood, DAPP Judicial Division Chief, are 
cousins. (XII: 111) At the time of the hearing, Alfonza Fullwood and James Fullwood were both in their 40's. (XII: 111) 
Alfonza Fullwood had known James Fullwood "pretty much all my life." (XII: 111) 

82. Since 1990, Alfonza Fullwood has worked as an EEO officer within DOC. (1: 1 17) In late 1992 or early 1993, 
an EEO section was created within DOC. (1: 1 17) That section reported directly to the Secretary of DOC and to the Assistant 
Secretary of Hiunan Resources Management. (1:118) Since the reorganization in 1992 or 1993, Alfonza Fullwood has had full- 
time responsibility as EEO Manager. (1:118) 

83. DOC has almost 18,000 employees. (1:122) According to Alfonza Fullwood, the EEO Office "is bombarded 
with a number of complaints ranging from sexual harassment to discnmination to denial of promotion." (1: 122) The office has 
received "numerous complaints" of sexual harassment (1:123) 

84. Alfonza Fullwood was unable to recall a single case since he became EEO Manager in which the EEO 
investigation resulted in a termination or demotion of a supervisor who was alleged to have engaged in unwelcome sexual 
conduct toward a subordinate. (1: 123-24) Fullwood did not recall any such case in which the accused supervisor was transferred 
from one office to another. (1:124) Fullwood did not know whether any DOC employee who alleged that a supervisor had 
engaged in sexual harassment was still employed by DOC. (1: 124) 

85. After the meeting in his office on January 1 1, 1996, Beck called Alfonza Fullwood to ask his office to conduct 
an investigation of petitioner's grievance. (XII : 7 1 ) 

86. After receiving petitioner's written grievance, Alfonza Fullwood assigned the responsibility for the investigation 
to Gwen Sanders, an investigator in the EEO Office. (XII: 72) 

87. Sanders interviewed petitioner on January 18 and 23, 1996. (PX20 at 4, & 10) During the interview, petitioner 
asked Sanders to talk to three witnesses who were not employed by DAPP: Dr. Anita Blosser, Dr. Jack McWay and Kim 
Christopher. (11:71) Petitioner thought it would be important for Sanders to talk to these witnesses because they were three of 
the first people that petitioner had told about Terry's acts of harassment. (1171) Sanders told j)etitioner that she would not talk 
to Blosser, McWay and Christopher because it was the policy of the EEO Office only to interview current employees of the 
agency. (11:71) 

88. Petitioner told Sanders that she would be willing to take a polygraph test at any time to prove that she was 
telling the truth. (11:72) Sanders told petitioner that the polygraph was not a tool that the EEO Office used in its investigations 
(11:72) 

89. Alfonza Fullwood testified that there is no prohibition on polygraph examinations within DOC, and the 
Department sometimes uses the polygraph as an investigative tool. (XIISO) The EEO Office, however, does not use the 
polygraph in its investigations. (XII: 80) 

90. After interviewing petitioner, Sanders interviewed 13 DAPP employees, including Terry, between January 19 
and 23, 1996. (PX20 at 4) 

91. On February 6, 1996, Sanders submitted a 7-page report to Alfonza Fullwood, summarizing the results of her 
investigation. (XII: 120; PX64) Alfonza Fullwood signed the report on February 7, 1996 and transmitted it to Theodis Beck, 
Director of DAPP. (XII: 120-21) The February 7 report, titled "EEO Case Prospectus," was an official transmission from the 
EEO Office to Beck's office. (XII: 121) 

92. The conclusion of the February 7 report was as follows: 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1384 



CONIES I ED CASE DECISIONS 



Based upon all the relevant information, there is probable cause to believe that Mr. 
Tern, 's beha\ lor constitutes inappropriate conduct related to. 1 ) telling Ms Robinson about 
his dream; 2) his comment to Ms. Terr\ [sic] reference his acquaintance inquir> concerning 
the white female accompanying him; and 3) his allowing Ms. Robinson to pull up her shirt 
and his specific action of removing band aids. 

(PX60.1) 

93. After Alfonza Fuilwood submitted the Februan,- 7 report to Beck, Beck contacted him by telephone to discuss 
the report. (XII:124; XII: 170-71) 

94. After talking with Beck. Fuilwood made handwritten notations on the Febmarv 7 report, indicating changes 
that were to be made in the conclusion of the report. (XII:I25-26; PX60.1; PX64 at 7) Fuilwood then gave a copy of the report, 
including his handwntten notations, to Sanders (XII: 157) Fuilwood instructed Sanders to incorporate the changes indicated by 
his notations in a new version of the report (XII: 158) Sanders revised the report in accordance with Fullwood's instructions. 
(XII: 158) Sanders and Fuilwood signed the revised report on Februan' 26, 1996 and forwarded the new version to Beck. 
(XII: 158) 

95. The conclusion of the February 26 report was as follows: 

Based upon all the relevant information, to include factors relative to Ms. Robinson's behavior. Mr. 
Terry's conduct did not rise to the level of se.xual harassment However , there is probable cause to believe that 
Mr. Tern's behavior constitutes inappropnate personal conduct relative to; 1) telling Ms. Robinson about his 
dream, 2) his comment to Ms. Robinson reference his acquaintance inquiry concerning the white female 
accompanying him; and 3) his allowing Ms. Robinson to pull up her shirt and his specific action of removing 
band aids. 

(PX20) (emphasis added) 

96. With the exception of the conclusion, the discussion of the e\ idence in the Februan- 7 report and the February 
26 report is essentially unchanged ( Compare PX20 with PX64) Both reports list seven allegations by petitioner of sexually 
inappropriate comments or conduct by Terrv (PX20 at 1-2) The report notes that Terrv "categoncally denied" all of petitioner's 
allegations (PX20 at 4) The report documents extensive evidence tending to support petitioner's allegations, and tending to 
refute Terry's denials: 

a) As to the allegation that Terrv told petitioner about his dream concerning her. Angela Johnson 
confirmed that she had witnessed the incident, and Arlinda Braswell stated that petitioner had 
informed her of the incident. (PX20 at 5) 

b) As to the allegation that Tern- asked petitioner if he could come to Raleigh and spend the night with 
her, five DAPP employees B Debbie Babb, Scott Brewer, Megan Betts, Dwayne Smith and Angela 
Johnson B testified that petitioner told them about the incident. (PX20 at 5) Johnson said that 
petitioner came into her office in a verv- emotional state, to the point of crving. and told her that Terry- 
had made the proposition to her. (PX20 at 5) 

c) Arlinda Braswell told Sanders that Terry made a remark to her in May 1995 regarding a dream about 
him making love to her Johnson corroborated Braswell's testimony, stating that Tern told her of a 
dream involv ing Braswell (PX20 at 5) According to the report. "This then would lend some support 
to Ms Robinson's allegation regarding Mr Terry telling her that he had a dream about her. What this 
shows IS a possible pattern of specific behavior on the part of Mr. Terrv" (PX20 at 6) 

d) The report notes that the witnesses petitioner identified "all corroborate her testimony" The report 
continues: "The possibility of conspiracy or collaboration between these witnesses and Ms Robinson 
is possible but remote and unlikely Therefore, it is believable that these witnesses, which cannot be 
discounted, lends some credence and increases the believability in the mind of a reasonable person. 
The totality of all these circumstances raises reasonable doubt concerning Mr Terry's testimony." 
(PX20 at 6) 



1385 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



97. The report also includes a discussion of evidence that purportedly casts doubt on petitioner's charges. The 
report notes that "Ms. Robinson filed the charge on the heels of being coached regarding performance issues." (PX20 at 6) The 
report goes on to say: "However, this does not invalidate her allegations or call into question the veracity of her charge." (PX20 
at 6) The report observes that "it is not uncommon for subordinates to have uncertainties and reluctance to report their 
supervisor for inappropriate conduct." (PX20 at 6) ( See XII:99; PX62 at 86 (Alfonza Fullwood explains that "subordinate 
employees are somewhat reluctant to [report their supervisor] for fear of reprisal, fear of their job, fear of losing income, and that 
kind of thing.")) 

98. The report appears to attach major significance to the fact that petitioner on several occasions asked Terry to 
remove a band-aid that had been placed on the crook of her arm after visits to her physician when blood had been drawn. (PX20 
at 6) The report states that "this behavior on the part of Ms. Robmson is inconsistent with her assertion of misconduct on the 
part of Mr. Terry." (PX20at6) 

99. After listening to the testimony of petitioner, Terry and witness Debbie Babb, the ALJ finds the "band-aid 
incidents" to be inadequate to reftite the substance of petitioner's claims. The ALJ notes the following: 

a) The bandaids were on the crook of petitioner's arm, not in an intimate location. (IX:62) 

b) The petitioner always asked Terry to remove the band-aid in the presence of Debbie Babb. (IX: 129) 

c) On one occasion, petitioner took her arm out of her sweater and her turtleneck so that Terry could 
remove the band-aid. On that occasion, Babb could see about two inches of bare skin exposed above 
petitioner's waist (IV:209). Terry could not see any of petitioner's skin except her arm (IV:208; see 
V:96 (Babb: "I didn't see anything but a little bit and nobody else did.")). Babb did not think that 
petitioner was trying to expose her body to anyone (V:86). On that occasion, Terry snatched the band- 
aid off and didn't give it a second thought. (IX: 1 30) 

d) Petitioner attached no significance to the removal of the bandaids; she asked anyone in the office, male 
or female, to remove them. (V:87-88; IX: 130) 

e) Babb thought that petitioner "meant nothing by it" when she asked Terry to remove the bandaids. 
(V:88) 

f) Terry testified that during the entire course of petitioner's employment, she never engaged in any 
sexually suggestive or provocative or inappropriate conduct toward him. (X: 1 14) 

100. After Beck received the February 26 report from Alfonza Fullwood, Beck's office forwarded a copy of that 
report to James Fullwood. (X:160) Deputy Director Guy asked James Fullwood to review the report and submit a 
recommendation for appropriate action. (X: 160) 

101. In reviewing the February 26 report, James Fullwood "did not draw [any] conclusion contrary to the conclusion 
rendered in this investigation." (XII:63 [check original deposition transcript]) According to James Fullwood, 

I did not sit in judgment and analyze the truthfulness or otherwise of the person. I focused on 
the conclusions rendered by the investigation completed by Mr. Alfonza Fullwood's office. 
And based upon that, I followed specific actions. 

(XII:63) James Fullwood continued: 

I have drawn one conclusion, that the investigation itself concluded that this matter did not 
reach to the level of sexual harassment. 

(XII:67) 

102. Like James Fullwood, Wooten did not question or evaluate the assessment of the evidence by the EEO Office. 
(V:208) She had no reason to question the investigation because, in her view, the investigation was performed by "an 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1386 



LUMtSTtU CAbt DEtISIUM5 



independent, objectnc group." i e . a group that was "(i]ndependent of the Di\ision of Adult Probation and Parole." (V:209) 
Wooten simply accepted the conclusion on the final page of the Februar\ 26 report that Terry's actions "did not nse to the le\el of 
se.xual harassment " (,V:208) 

3. " Remedial Action " 

a. Petitioner's Reassignment to Vance County 

103. Because the February 26 report indicated that Terry's conduct "did not nse to the le\el of sexual harassment." 
Fullwood recommended to Beck's office that Terry recene a "coaching." rather than any disciplinan. action. (X: 160-61. 171-72) 
FuUwood also recommended that Terr, oe requested to attend se.xual harassment training, (X:161) Finally. Fullwood 
recommended that the supers isors for the two stenographers in the Vance County office be switched, with petitioner transferred 
to the supenision of Jo Williams, and Debbie Babb transferred to the supenision of Robert Terry, (X: 162) 

104. Fulluood's recommendations are contained in a memorandum to Deputs Director Guy dated March 5. 1996. 
(RX7) Fullwood' s March 5 memorandum specifically relies on the re\ised conclusion in the Februar, 26 report that Terry's 
conduct "did not nse to the le\ el of se.xual harassment," (XI:33; RX7) 

105. On March 7. 1996. Alfonza Fullwood sent petitioner a certified letter, (PX17. 1174) The letter, in its entirety, 
reads as follow s: 

Dear Ms. Robinson; 

This office had conducted a thorough im estigation into your allegation of inappropriate 
condua by Mr. Robert Terr\-. Jr Chief Probation Parole Officer, or the VanceAVarren Coimty 
areas. 

You were inter\iewed on January 18. 1996. alone [sic] with other witnesses. This office had 
an opportunity to thoroughly examine all the rele\ant information gathered in reference to 
your complaint and ha\e submitted our findings to the Dnision of Adult Probation and 
Parole management for re\ lew and action if required. 

The Department takes serious all allegations of sexual misconduct complaints and encourages 
all employees to immediately report any conduct \iewed as inappropnate. Should you ha\e 
any questions regarding this matter, please feel free to call me or Gwen Sanders. EEO 
Officer, at (919) 733-4465, 

Should \ou disagree with our decision and wish to appeal this action. >ou may file a p>etition 
for a contested case heanng pursuant to G,S, 150B-23 with the Offiice of Administrative 
Heanngs. Post Offiice Drawer 27447. Raleigh. NC 27611-7447. or 424 N, Blount Street, 
Raleigh. NC 27601-2817 within thirt>- (30) calendar days from receipt of this letter. 

Sincerely. 

Alfonza Fullwood 
EEO Manager 

cc: Theodis Beck. Director. DAPP 

James Fullwood. Second Judicial Dnision Chief DAPP 
Gwen Sanders. EEO Office 

(PX17) 

106. .Although the March 7 letter ga\e petitioner 30 days to appeal "this action" if she disagreed with "our decision." 
the letter did not tell petitioner what the "action" or "decision" was. (11:75) Petitioner did not understand what the letter meant 
(11:75) She showed the letter to Kilbom. who also did not understand it. (111:103-04; VI; 178-79) 



1387 SORTH CAROLI.SA REGISTER Januan 15, 1998 12:14 



f 



I 



I 



CONTESTED CASE DECISIONS 



107. Seeking an explanation, petitioner called Alfonza Fullwood. (11:75) Alfonza Fulhvood directed petitioner to 
call Theodis Beck, Director of DAPP. (11:75) Petitioner called Beck numerous times, but he did not return her calls. (11:75) 
Eventually, Beck's secretary called petitioner and told her that someone would be gettmg in touch with her. (11:76) On the same 
day, Wooten called petitioner and instructed her to come to the DAPP office in Smithfield on March 18 to hear the results of her 
grievance. (11:76) 

108. On March 18, 1996, petitioner went to the DAPP Office in Smithfield. (11:76; PX18) She was called into a 
meeting with James Fullwood, Kyle Kilbom and Evelyn Wooten. (11:76) James Fullwood read her a letter, dated March 15, 
1996. (11:76-77; PX56 at 1) The letter in its entirety, reads as follows: 

Dear Ms. Robinson: 

Please know that careful consideration has been given to your concerns and issues 
raised in your gnevance by the Department of Correction, EEO Manager as well as the 
management of the Division of Adult Probation and Parole. As you are aware, a thorough 
in\estigation was conducted into your allegations of inappropnate conduct by Mr. Robert 
Terry, Jr., Chief Probation/Parole Officer for the VanceAVarren County areas. 

It has been discerned that the finds of fact in the EEO investigation did not rise to 
the level of sexual harassment. Howe\ er, we did find some problems on both sides and wish 
to take the appropnate action in the best interest of all parties imohed. Therefore, we are re- 
assigning your position as Clerk T>pist III from the Unit supervised by Mr. Robert Terry, Jr. 
to the Unit supervised by Ms. Jo Williams, effective immediately. This re-assignment will 
put you in a position where you will no longer be directl} supersised by Mr. Terry. 

In ad\ance, we thank you for \our cooperation. 

Sincerely, 

James R. Fullwood 

Second Judicial Division Chief 

(PX19) 

109. Under respondent's plan, petitioner would be assigned to return to Vance County, working in the same office as 
before. (111:107) The only difference would be that her direct supervisor would now be Jo Williams, rather than Terry, and 
Debbie Babb, who had previously reported to Williams, would now report to Terry (III: 107) Given the layout of the office, with 
the two stenographers working side by side in the same room, petitioner would be in contact with Terry every day that he was in 
Vance County. (111:108) In the Vance County office, when one CPPO was out of the office, the other CPPO had authonty over 
all employees in the unit. (11:78; 111:108, V:109; IX: 117-19; X:123; XI:44; PX7, & 21) If one stenographer was absent, the 
consistent practice in the Vance County office was for the second stenographer to perform secretarial duties for the entire unit. 
(11:14-15, 47, 78; IV:197;V:210) 

110. At the time he presented respondent's plan on March 18, Fullwood knew Dr. Blosser's medical opinion that 
petitioner could not tolerate working in the same office with Terry (XI:42-4; PX9) Fullwood assigned petitioner to work in the 
same office with Terry, knowing that she could not accept the assignment. 

111. After Fullwood read his letter to petitioner, petitioner expressed her disagreement. (11:77; X: 168) She said that 
she did not think the Department had performed a thorough in\estigation. (11:77; PX56 at 1) In particular, she said that her 
request to take a pohgraph examination should have been granted, and that her health care providers should have been 
interviewed. (11:77; X:168; PX56 at 1) 

112. Petitioner informed the DAPP officials that she needed to take the rest of the week off. (11:79) Kilbom 
approved petitioner's request to take annual leave for the penod March 19. 1996 through March 22, 1996. (11:79; PX21) 



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CONTESTtD CASH DECISIUISS 



113 After thev met with petitioner, Fullwood. Wooten and Kilbom met with Terry to inform him of the results of 
the investigation When Terr, came into the conference area, he was visibly nervous and upset. (PX56, see 111:112) Fullwood 
informed Teny that the EEO Office had concluded that his acts "did not nse to the level of se.xual harassment," but that some of 
his beha\ior w as "inappropnate " (PX56 at 2) Fullwood advised Terr, that a coaching would be conducted and that he would be 
expected to participate in sexual harassment training (Id ) Terr\- was informed that Babb would be his secretary and that 
petitioner would be supen, ised by Williams, effectne immediately. (M.) When given an opportunity to make comments or ask 
qucsuons. Tern objected to the coaching, stating that he was not guilty of wrongdoing. (Id., Ill: 113-14) Wooten reminded Terry 
that coaching was not a disciplinary action. (Ill: 113, PX56 at 2) 

1 14. After the meeting in Smithfield, petitioner spoke with Dr. Blosser to ask her opinion about whether petitioner 
would be able to go back and work in the same office with Terr>- (11:79-80) Dr. Blosser said that her medical opimon was the 
same as it was on Januan- 10: Petitioner could not work in the presence of Terry. (11:80) 

1 15 On March 21. 1996, petitioner sent a letter by fax to Kilbom. communicating Dr Blosser's medical opinion. 
The letter, in its entirety, reads as follows: 

Dear Mr. Kilbom: 

On Monday, March 18. 1996 I was directed by memo to report to the Henderson Probation 
office immediately. As >ou know. I took 32 hours of vacation which will make my beginning 
date Monday. March 25. 1996. 

On March 21. 1996, I spoke with my lawyer and my family physician. Anita Blosser, MD. 
Dr. Blosser ad\ ised me that her medical opimon has not changed in reference to retuming to 
work at the Henderson Probation office as long as Robert Teny continues to work out of that 
building and she also advised that her letter to you on Januar\- 10. 1996 is still in effect in 
regard to working in the same atmosphere as before. 

Through legal ad\ice and medical reasons stated by Dr. Blosser I am requesting that Robert 
Tern, be remo\ed and forbidden to work out of the above-mentioned office or to be in my 
presence. I am hereby requesting that either Robert Terry be remo\ed from that office or I 
am transferred within the organization with a comparable position at a worksite within a 
reasonable working distance from my home. 

Sincerelv, 



Pamela Robinson 

(PX22) 

116. On Apnl 1, 1996, Wooten wrote Robinson the following letter: 

Dear Ms Robinson: 

This is to ad\ise that we are in receipt of your correspondence to Kyle Kilbom, 
Judicial Distnct Manager, dated March 21. 1996 In an attempt to determine what options 
may be a\ailable for you in the form of a lateral transfer, please further advise what you 
consider to be a "reasonable working distance from your home" More specifically please 
identifi,- w hich counties that would be acceptable to you. 

In order for us to mo\e forward with additional considerations to accommodate you, 
please send your reply to me at 869-A Berkshire Road. Smithfield. North Carolina 27577. as 
soon as possible. 

Sincerelv. 



1389 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



Evelyn M. Wooten 

Second Judicial Division Assistant Chief 

(PX23) 

1 17. In her April 1 letter, Wooten did not pro\'ide a deadline for petitioner to respond. 
(PX23) 

118. Soon after writing to Wooten on March 21, 1996, petitioner learned of two other women who ultimately 
testified about sexual overtures by Terry. (11:81-82) In light of that additional information, petitioner did not think that she 
should be driven out of her job, while Terry remained in his. (11:82-83) By letters dated Apnl 19, 1996 and April 25, 1996, 
petitioner informed James Fullwood and Wooten of the women, and asked that DAPP reconsider her grievance in light of the 
new information. (PX25 at 4; PX26) 

119. Petitioner continued on paid leave until March 29, and on unpaid leave thereafter. (11:91-92) 
b. Terry's Coaching 

120. At the March 18, 1996 meeting in Smithfield, Terry was informed that a coaching would be conducted because 
of his conduct toward petitioner. (PX56 at 2) Under DOC policy, coaching is not considered to be a disciplinary action. (111:84) 
Coaching is an opportunity for a manager or supervisor of an employee to give guidance to an employee on work performance or 
personal conduct issues. (X:171) The purpose of coaching is to draw the employee's attention to an issue so that he or she can 
improve. (X: 171) Coachings are usually done to improve an employee's work performance where some deficiencies have been 
noted. (X:I71) 

121. On Apnl 10, 1 996, Wooten and Kilbom went to Warrenton to conduct a coaching session with Terry. (Ill; 1 14) 
The session lasted no more than 15 or 20 minutes. (XII: 50) 

122. At the coaching session, Wooten presented Terry with a two-page document titled "Performance Management 
Review (Coaching)." (PX13; XII:50-51) The document includes the following list of "items discussed": 

1) Importance of projecting a Professional image. 

2) Making any comment that has sexual overtones or that could be suggestive of having sexual overtones. 

3) Allowing anyone to engage in conduct that may have sexual implications. 

4) Giving any appearance through actions/comments that are suggestive of retaliation. 

5) Participation in Sexual Harassment Training. 

(PX13) Wooten read those five items to Terry, without any other commentary. (X1I:51; III: 1 17) "She just read these verbatim." 
(111:116 (Kilbom)) 

123. Under a section titled "Assistance/Recommendations Rendered by Supervisor; Plans to Overcome Any 
Deficiencies," the coaching document contains the following list; 

1) Supervisor will assist in coordinating Sexual Harassment Training. 

2) Supervisor will provide you a copy of the policy governing human relations in the workplace. 

3) Supervisor will meet with you in 30 days to follow up on items that were discussed. 

4) Manager and Supervisor are available to render support, assistance and guidance when problems or 
questions may arise. 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1390 



COi\ I tS J hU CA^t. UEClblUNS 



(PX13) At the coaching session. Woolen read the four action items to Tern- without any other commentar>- (111:117; XII:51) 

124 The second page of the coaching document contains typed "supervisor's comments" by Kilbom and "manager's 
comments" by Wooten. (PX13) The supervisor's comments are as follows: 

This coaching is presented to Mr. Robert Terrv , Jr due to findings of probable cause with 
respect to inappropnate personal conduct. Mr Terry , Jr is ad\ised to conduct himself in a 
professional manner at all times and avoid making any statements that may be construed as 
violating the Human Relations policy of this Division. 

(PX13) The manager's comments are as follows: 

As a result of a sexual harassment grievance, it was found that Mr Terry's behavior did not 
rise to the level of se.xual harassment Hovve\er, there was probable cause to believe that his 
conduct was inappropriate Therefore, through this coaching, he is being ad\ised to refrain 
from making comment or taking any action that has implications of being sexual in nature or 
retaliatorv while in the presence of any DOC employee, resource agency, representative or 
any other person with vv horn he is conducting official business. 

(PX13) At the coaching session, Wooten read the supervisor's comments and manager's comments without any other 
commentarv. (XII :5 1-52) 

125 After reading the super\isor's and manager's comments, Wooten asked Tern- if he had any comments to make. 
(XII:52) Tern- said that he would sign the document, but did not agree with it. (XII:52) Terry then signed the document with 
the following comment: "1 disagree with this coaching very strongly However, I am signing it to receive my copy for my file." 
(PX13) 

126 Other than the actual reading of the document and asking if Terry had any statements to make, nothing else 
happened at the meeting (XII:52) Wooten and Kilbom then returned to Louisburg. (XII:53) 

127 In the enUre coaching session, no one informed Terry of specific items of inappropriate conduct. (111:118) 
Neither Kilbom or Wooten relaved to Tern- the specific conduct that was identified as inappropriate in the conclusion of the EEO 
Office's Febmarv 26 report. (111:118-19) 

128 On the coaching document, the first item listed in the plan of action states: "Supervisor will assist in 
coordinating sexual harassment training" (PX13) In the Smithfield meeting, Terry had been informed he would be required to 
attend se.xual harassment training (PX56 at 2) As of November 27, 1996, when Kilbom testified at the heanng, Terry had 
attended no sexual harassment training (111: 120) Terry finally attended a se.xual harassment workshop in December 1996. eight 
months after the coaching (V:229-30; XI:36) 

129 The second item in the plan of action slates: "Supervisor [Kilbom] will provide you a copy of the policy 
governing human relations in the workplace" (PX13) According to Kilbom, "that wasn't done." (Ill: 120) 

130 The third item in the plan of action states: "Supervisor will meet with you in thirty days to follow up on items 
that were discussed." (PX13) No follow-up meeting occurred. (111:120; XI:39) 

131 The fourth item in the plan of action states: "Manager and supervisor are available to render support, 
assistance and guidance when problems or questions may arise" (PXI3) Neither Wooten nor Kilbom had any further 
communication with Tern about the concems identified in the coaching document. (Ill: 121-22; V:233-34) 

132. In response to questions at the heanng, James FuIIwood reviewed the follow-up. or lack of follow-up, to the 
plan of action set forth in the coaching document. (XI:36-39) FuIIwood was then asked: "Do you consider this to be a prompt 
and effective remedial response to the problems that were identified with Mr Terry'^" (XI:39) FuIIwood answered as follows: "I 
would not view this as a prompt follow-up to what is required inasmuch as it was indicated that it was not done." (Xl:39-40) 

4. March 1996 Performance Evaluation 



1391 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



133. On March 18, 1996, Tern' met with James Fullvvood, Wooten and Kilborn to discuss the outcome of the 
investigation of petitioner's gnevance agamst him. (PX56) On the same day, Terry prepared a wntten performance evaluation of 
petitioner, covering the tlrst year of her employment. (Vl:203; IX: 190; PXl 1) 

134. On March 25, 1996, Terry presented the performance evaluation to Kilborn for his review. (VI:203) Kilbom 
added his comments as reviewing manager on that date. (VI:203, PXl 1, Part V) 

135. The March 1996 evaluation includes criticisms of petitioner's performance in every category. (PXll) None of 
the criticisms in the performance evaluation are supported by contemporaneous documentation, except for the telephone incident 
on the morning of January 4, 1996. (X:89, 99-102) 

136. Terry and Kilbom gave petitioner an "overall rating" of "good" for the 12-month period covered by the March 
1996 performance evaluation. (PXll; 111: 127) That rating was lower than the "very good" rating they had given her in the six- 
month interim evaluation. (PX16) 

137. Terry's "comments on overall performance," dated March 18, 1996, are as follows: 

Ms. Robinson came to us from A.O.C. on March 20. 1995. Her computer skills was [sic] a 
great help to the unit. Her work and attitude toward her job was [sic] fine until some time in 
• - January of 96 She began having problems in the area of DAPP policy, completing tasks 

assigned to her, leaving her assigned duty station without authonty This problem continued 
until she left work on 3/18/96 and never returned. This has caused a great deal of stress on 
the units in Vance County. 

(PXl 1, Part V (emphasis added)) At the hearing, Terry testified that his reference to "January of 96" was erroneous, and that the 
decline in performance began in October 1995. (IX: 194) 

138. Kilbom's "comments on overall performance." dated March 25, 1996, are as follows: 

Ms. Robinson began her duties with The [sic] Vance County unit on 3/20/96 [sic] . She began 
with a good attitude and seemed to work well with others. However, her performance as well 
as her attitude toward her super\isor and staff declined. Her conduct was disruptive. 
Although the supervisor and myself tned to work with her, it did not help. She walked off 
thejob on 3/18/96. 

(PXll, Part V) At the heanng, Kilbom acknowledged that Robinson did not "walk off the job" on March 18, 1996. (111:127) He 
acknowledged that at the time he wrote his comments, he was aware that petitioner had not retumed to the Vance County office 
pursuant to her physician's instructions. (Ill: 127-28) 

139. At the November 17, 1995 meeting with petitioner in Vance County, Kilbom and Terry had agreed that 
petitioner's next performance evaluation would reflect that petitioner's performance had been affected by her medical condition. 
(Xll:43; PX6) The March 1996 performance evaluation contains no reference to petitioner's medical condition. (PXll) 

5. Termination 

140. On April 18, 1996, James Fullwood sent petitioner a letter directing her to report to work at the Vance County 
DAPP office by Apnl 29, 1996. (PX24) The letter continues: "If you fail to report to work or contact this office by Apnl 29, 
1996 . 1 will recommend through the chain of command that you be separated from employment under the provision of 
'Resignation Without Wntten Notice.'" (Emphasis added) (PX24) 

141. At the time he wrote petitioner on Apnl 18, Fullwood knew Dr. Blosser's medical opinion that petitioner could 
not tolerate working in the same office with Terry. (XI:47-48; PX9; PX22) Fullwood assigned petitioner to work in the same 
office with Terry , knowing that she could not accept the assignment. 

142. Petitioner received Fullwood's Apnl 18 letter on April 19. She immediately instructed her attorney. Burton 
Craige. to respond to Fullwood's letter. Craige sent a five-page letter to Fullwood on April 19, 1996. (PX25) Fullwood received 
Craig's letter on Apnl 24, 1996. (PX31.2) 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1392 



CONTESTED CASE DECISIONS 



143. The April 19 letter from Craige includes the following paragraph: 

Since March 21. Ms Robinson has learned that Mr Terr>' has 
pre\iously subjected other women to sexual harassment, including a 
teenager who was sexually harassed by Mr Terrv' in the late 1980's. I 
understand that other women have also been victims of Mr. Terry's 
unwanted sexual attentions, including at least one other employee in the 
Probation and Parole Office. 

(PX25 at 4) 

144 The April 19 letter from Craige to FuUwood includes a detailed settlement proposal to resolve petitioner's 
claims. (PX25 at 4-5) 

145, The Apnl 19 letter from Craige to Fullwood includes a specific response to Wootens Apnl 1 letter: 

By letter dated April 1, 1996. Ms. Wooten asked Ms. Robinson to 
state what she considers a "reasonable working distance" from her home. 
Ms. Robinson, the victim, should not be required to suffer any further 
disruption In light of Mr Terry's conduct toward Ms. Robinson and what 
we have learned about his conduct toward other women, the only fair 

resolution is to fire or transfer Mr. Terry, and return Ms Robinson to her - 

former position 

(PX25 at 5) 

146. Craige's letter to Fullwood states: "Please consider this letter as Ms. Robinson's response to your letter dated 
April 18, 1996." Craige asked Fullwood to respond to his letter by April 26. 1996 (PX25 at 5) 

147 On Apnl 25, 1996, Craige sent another letter to Fullwood. (PX26) Fullwood received that letter on Apnl 26. 
(PX3 1.2) The April 25 letter reads as follows: 

Dear Mr Fullwood: 

As I mentioned in my letter of Apnl 19, we have learned that Mr Terry has 
previously subjected other women to sexual harassment 1 am enclosing a copy of a statement 
made by Tonya Williams to Charles Worth on August 8, 1986. At the time of the statement, 
Ms Williams was 18 years old. 

Mr. Terry also sexually harassed Rhonda Steverson Howell in the summer of 1989. 
At the time. Mrs Howell, then unmarried, was 18 years old and working in a summer job at 
the Warren County Courthouse 

Ms. Robinson is onh the most recent of Mr Terr\'s multiple \ictims. Please let me 
know immediately what the Department intends to do to remedy the problem. 

I look forv\ard to your response. 

Sincerely yours. 



€ 



f 



Burton Craige 



(PX26) 



c 



1393 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



148. Appended to Craig's April 25 letter was a two-page t>ped document titled "Oral Statement Made By Tonya 
Williams to Charles J. Worth on August 8. 1996." (PX25 (Attachment); PXl) The statement is signed by "Tonya R. Williams" 
on August 18, 1996. In the document, Williams states that Terry "felt my breast, my back and my thighs " When asked by the 
interviewer if "it [could] have been a friendly touch," Williams responded: "No, it was no friendly touch. 1 told him to go harass 
someone else's secretary." (PXl) 

149. Fulhvood received both of Craige's letters before the April 29 deadline that Fullwood had announced in his 
April 18 letter. (11:87-88; PX24, PX25) Fullwood transmitted copies of Craige's letters up the chain of command to Lee, Guy 
and Beck, and to the Attorney General's office, DOC's legal counsel. (Xl:66-67; VIl:8-9) Fullwood did not respond to either the 
April 19 or April 25 letters from Craige. (11:87, 88) Petitioner heard nothing from the Department of Correction before the 
April 29 deadline. (11:88) 

150. Fullwood testified that neither he nor Beck believed that Craige's letter of April 19 adequately responded to his 
letter of April 18. (XI:54) Fullwood did not notify Craige that he considered Craige's letter to be deficient or nonresponsive. 
(XI: 54) Fullwood referred Craige's letter to the Attorney General's office because the letter included a demand for settlement 
(XI:54-55) Fullwood did not notify Craige that he (Fullwood) had forwarded Craige's letter to legal counsel, and that Craige 
needed to communicate with legal counsel instead of Fullwood. (XI:55) 

151. The next commimication petitioner received from the DOC was a letter from James Fullwood, dated May 15. 
1996, informing petitioner that she had been terminated, effective Apnl 29, 1996. (11:88-89; PX27) Fullwood's letter 
characterized petitioner's separation from employment as a "resignation without wntten notice." (PX27) 

152. On May 3, 1996, Wooten prepared and signed a personnel action form for petitioner's separation from 
employment. (PX37) The separation form indicates that petitioner was "dismissed." (PX37) 

153. After petitioner received Fullwood's May 15 letter, her attorney obtained an affidavit from Rhonda Steverson 
Howell. (11:89) On June 4, 1996, Craige sent a letter to the Assistant Attorney General then representing respondent with 
Howell's affidavit attached. The affidavit, signed and notanzed on May 29, 1996, states that Terry sexually harassed Howell in 
1989 when Howell, then age 18, had a summer job in the Warren County courthouse. (PX28 (Attachment); PX2) The affidavit 
states that Terry frequently made sexually suggestive comments about Howell's appearance and clothing. (PX2, & 4) The 
affidavit includes the following statement: 

One day, Mr. Terry asked me to come into his office. He cornered me in front of a filing 
cabinet and placed his hand on my buttocks. I told him to stop and immediately left his 
office. 

(PX2. & 5) 

154. The affidavit states that Howell immediately reported the incident to her supervisor. (PX2, & 6) The affidavit 
states that the supervisor and Terry told Howell that if she tried to pursue any action against Terry , he would sue her for slander 
and her college career would be ruined. (PX2, & 7) 

155. Craige's June 4 letter to the Assistant General Attorney then representing DOC includes a request that DOC 
reopen its investigation of petitioner's allegations "in light of the statements of other victims of sexual harassment." (PX28) 
DOC did not reopen its investigation. (11:90) 

156. Petitioner's salary at the time of her termination was $18,263. (PX37) She started working for the State on 
May 1, 1991. (11:90; PX20 at 2) A state employee who has worked at least five years is entitled to certain benefits at retirement 
age. (11:90-91) Any employee who works less than five years is not entitled to those benefits (11:90-91) Fullwood's May 15 
letter to petitioner established the effective date of her separation as Apnl 29, 1996, two days before petitioner's fne-year 
anniversary of employment with the State. (11:91; PX27) 

157. Petitioner has not been employed since the State terminated her employment. (11:92) Dr Blosser (petitioner's 
physician), Ms. Watkins (her therapist), and Dr Home (her psychiatrist) agree that the high stress of pursuing her claim of 
harassment, including multiple depositions and a lengthy hearing, has made it impossible for petitioner to hold a job since the 
termination of her employment (IV: 111, 117-118; V:44; Vl:26-27) If respondent moved Tern- out of the Vance County office 
and reinstated petitioner into the job for which she was hired. Dr. Blosser, Ms. Watkins and Dr. Home believe that she would be 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1394 



CONTESTED CASE DECISIONS 



able to perform her duties, (IV: 1 19, V:44, VI:27) Petitioner agrees. (11:92-93) 

158. Petitioner has suffered economic losses as a result of Terrs 's conduct and respondent's actions Those losses 
include loss of sick and \acation lea\e from Januan.' 4 to 17. 1996. expenses for tra\el from Henderson to Louisburg from 
Januan 18. 1996 through March 18. 1996, loss of sick and vacation leave from March 19 through March 29, 1996, lost income 
due to unemplo>ment since March 29, 1996. loss of health insurance benefits, loss of retirement benefits, medical expenses, 
attorney's fees, and litigation expenses. (II: 109-10) 

EVIDENCE NOT CONSIDERED BY THE STATE 

159 When Craige provided the names and statements of Tonya Williams and Rhonda Steverson Howell to DOC, no 
one from DOC or the State contacted Williams or Howell. (I; 175-80, 199) No one from DOC questioned Terry about the 
allegations made by Williams and Howell. (X: 117) 

160. Tonya Williams testified at the heanng. Her testimony was recei\ed into evidence for the limited purpose of 
showing the effect the information pro\ided by Craige should have had. if any. on DOC. (1: 180) Williams was bom on June 29, 
1968 in Vance County. (1:181) She graduated from Warren County High School in 1986. and from St. Augustine's College in 
1991 with a B.S. degree in Business Management. (1:181) Williams has been employed at St. Augustine's College since 1992. 
(1:181) She is now the Purchasing Assistant for the college. (1:181) 

161. In the summers of 1985 and 1986. Williams worked with the summer youth employment program in 
Warrenton. (1:182) She was assigned to the Community Services office, located across the street from the courthouse in 
Warrenton (1:183) Williams" supenisor was Ane Davis. Coordinator of the Office of Victim and Community Ser\'ice. (1:183) 
Williams' work brought her into regular contact with the PPO's in Warren County, including Robert Terry. (1: 185-86) 

162 Williams testified that in the summer of 1986. Terry engaged in conduct toward Williams that she considered 
to be inappropnate. (1: 187) Terry made comments to her that she had a "nice body for a young girl" and that she had "a vvell- 
de\eloped body for a girl [your] age." (1:188) Terry never made such comments when Da\is was present. (1:189) On one 
occasion. Terry came into the office when Davis was absent. Williams descnbed what happened: 

He touched my back and my breast, and he touched my thigh. I don't remember which one. I 
don't remember which breast All I know is that he laid hands on me. and it was not in a 
spintual sense. 

(1:190) Williams testified that she asked Teny to stop and then told him that he should harass his own secretan.- or somebody 
else's secretary and not her (1:191) On another occasion. Tern forcibly grabbed Williams' hand, but stopped when someone 
walked in. (1:192) After the second touching incident. Williams reported what had happened to Ane Davis, her super\isor. 
(1:193-94) Williams then provided an oral statement to Charles Worth, the County Manager, and signed a transcnpt of the 
statement. (1:193-94. 196; IV: 143-44) The two-page statement attached to Craige's Apnl 25. 1996 letter to Fullwood is the 
statement Williams signed in August 1986. (1:195-96) Before the meeting with Worth, Terry called Williams to meet with him 
pmately in the courtroom (1:197-98) In that comersation. Terry told Williams that if anyone asks her about the incident, she 
should deny It. (1:198) 

163 No one from the State of North Carolina or DOC contacted Williams to ask her about the incidents \\ith Teny. 
(1:199) The first time anybody from the State asked Williams about the incidents was when the State's attorney took her 
deposition in October 1996. (1: 199) Williams testified that, if someone from DOC had called her in April 1996 and asked about 
these e\ents. she would ha\e provided the same information that she provided at the heanng. (1: 199-200) 

164. Williams does not know petifioner, has never met her. would not know her if she saw her, and has ne\er talked 
to her about her case. (1:199) 

165, Respondent called Ane DaMS as a witness (IV: 129) In 1986, Davis was working with the Department of 
Traffic Control and Public Safety as a coordinator for Community Sen. ices. (1:133) Tonya Williams worked in Da\is' office for 
two summers in the mid-1980's. (1:134) Davis had known Williams since Williams was a child (1:134-35), and specifically 
requested that Williams be placed in her office. (IV: 134, 150) Because Davis would be absent from her office frequently, she 
wanted someone who had a particular degree of matunt} to take the job (IV: 150) Da\is has ne\er known Williams to be 
untruthful to her or anyone else (1V:151) Davis has known and worked with Robert Terry for 12 to 13 years. (1:138-39) In 



1395 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



1986, Terry and Davis were friends and often ate lunch together. (1:140) In the second summer that Williams worked with 
Davis, Williams reported to Davis that Terry had touched her. (1; 142) From that day forward, Davis never left Williams in the 
office alone. (1:142-43) 

166. At the hearing, Terry denied Williams' allegations. (IX: 141-42) 

167. Rhonda Steverson Howell testified at the hearing by videotape deposition. Her testimony was received into 
evidence for the limited purpose of showing the effect the information provided by Craige should have had, if any, on DOC. 
(11:2; PX58) Howell was bom on February 17, 1971 in Warrenton. (PX58 at 5) She graduated from Warren County High 
School in 1989. (Id. at 6) In the summer of 1989, Howell worked at the Warren County courthouse as part of the summer 
Manpower program. (Id. at 6) She was assigned to work under the supervision of Arie Davis, performing clencal and secretarial 
tasks. (Id at 7) Terry's office was directly across the hall from Davis' office. (M. at 8-9) Davis was in the field most of the time, 
and was seldom in her office. (Id. at 7-8) When Davis was not in the office, Terry asked Howell to do clerical and secretarial 
work for him. (Id. at 9) 

168. Howell testified that soon after she started working at the courthouse, Terry asked Howell how old she was. 
When she told him she was 18, Terry said "He was glad because that means what he was thinking was not illegal." (M. at 9) 
Howell interpreted that statement as a sexual comment. (Id. at 9-10) Howell was shocked and walked out of Terry's office. (Id. 
at 10) On another occasion, Terry told Howell that she "was well developed to be only 18." (Id. at 10) Terry told her she "had 
[a] very nice body to only be a teenager." (Id. at 10) Howell asked Terry to stop making those comments, but he continued to 
make them. (Id. at 10) During her employment that summer, Terry made 10 to 15 se.xually suggestive comments to Howell. (M. 
at 82) 

169. Howell testified that on one occasion, Terry called her into his office and closed the door behind her. (Id. at 1 1) 
Terry then pinned her against the filing cabinet with his body. (Id. at 1 1) Howell's shoulders were pressed between the upper 
part of Terry's body and the filing cabinet. (Id. at 57-58) While she was pinned against the filing cabinet, Terry reached around 
her and placed his hand on the lower part of her buttocks. (Id. at 1 1, 57) Howell pushed him away and went back to her office. 
(Id. at 58) 

170. Howell testified that the same day that Terry touched her, Howell went to the office of Essie Glasco, supervisor 
of the Manpower program. (Id. at 12) Howell told Glasco that she wanted to quit her job. (Id at 12) When Glasco asked why, 
Howell told her that Terry had made a pass at her, had pinned her against the filing cabinet and touched her buttocks. (Id at 12) 
Glasco said she did not believe Howell and that if Howell told anyone else, Terry would charge her with slander and ruin her 
career and chances of going off' to college. (Id. at 12) Howell told Glasco that she was quitting, and left her office. (Id. at 12-13) 

171. Howell testified that on the ne.xt payday, Glasco called her and told her to come to the office to get her last 
paycheck. (M. at 13) When Howell came into Glasco's office, Terry and Glasco were there. (Id. at 13) Glasco again told 
Howell that she did not believe what Howell had reported and told her that if she tried to do anything about it, they could get her 
for slander. (Id. at 13-14) Howell started crying and told them she did not want to do anything about it, and that she just wanted 
to get her last paycheck and forget about it. (M. at 14) 

172. At the time Howell quit, she had been working for a little over a month. (Id. at 14) She liked her job and 
needed the money. (Id at 14-15) She would not have quit her job if the incidents with Terry had not happened. (Id. at 15) 

173. In August 1989. Howell began her studies at Elizabeth City State University. (Id. at 15) She received her 
Associate's degree in Early Childhood Education in 1991. (Id. at 15) Howell served in the Army from 1992 until December 
1995. (Id. at 15) She married her husband James Edward Howell in 1995. (Id. at 15) She is presently living in Arizona, 
working as an administrative assistant at an alternative school for children who have dropped out of school. (Id. at 15-16) 

174. Howell does not know petitioner and has never spoken with her (Id. at 16) Howell knew Tonya Williams 
when she was growing up because they lived in the same community and went to the same high school. (M. at 16-17) She last 
saw Williams in 1986 during Williams' senior year in high school. (Id at 17) Howell has not spoken with Williams since 1986, 
and has never discussed petitioner's case with her. (Id at 17) 

175. In her tesfimony at the hearing, Davis confirmed that Howell worked with her in the summer of 1989 (IV: 147), 
and that Howell quit either in the beginning or in the middle of the summer. (IV: 154) At the time, Davis heard allegations that 
there had been some kind of misconduct by Teny (IV: 154) After the summer of 1989, Davis stopped participating in the 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1396 



CONTESTED CASE DECISIONS 



summer youth program because she feU it was necessary- to be in the students' presence while they were working for her. 
(IV: 157) Since Davis' job required her to be out of the office frequently, she did not think that it was feasible to continue the 
program (IV; 157-58) Her decision was influenced in part by the incidents involving Williams and Howell. (IV; 158) 

176 Essie Fields, formerly Essie Glasco, testified as a witness for respondent. (IV; 177) Fields has known Terry 
since the early 1980=s (IV; 185-91) Fields testified that in the summer of 1989, she learned that Rhonda Steverson Howell had 
told a counselor that she (Howell) had been subjected to some kind of sexually inappropnate conduct by Terry. (IV; 192-93) 
Fields knew of no motive for Howell to falsely accuse Terry of improper conduct. (IV; 193) 

177. At the heanng. Tern' denied Howell's allegations. (IX; 145-47) 

178. Despite petitioner's request, respondent did not contact petitioner's health care providers dunng its investigation 
of her grievance. (PX56 at 1; PX62 at 55) If respondent had spoken with petitioner's health care providers, respondent would 
ha\e obtained rele\ant information about petitioner's medical condition, diagnosis and treatment Respondent would have also 
obtained further confirmation that petitioner made contemporaneous reports of Terry's acts of harassment, before Terry expressed 
any concerns about petitioner's job performance. In addition, respondent would have obtained information about the 
psychological impact of Terry's harassment on petitioner, and petitioner's reaction to Terry's conduct. 

179. Dr. Blosser, petitioner's physician, testified that the harassment petitioner experienced at work had a profound 
impact on her physical and psychological state. (VI 27-28) First, Dr Blosser noted that the increased tension caused by the 
harassment made it impossible for petitioner to cope with her headaches without medication. (VI; 27) Second, petitioner's post- 
traumatic stress disorder, ansing from her expenence of childhood sexual abuse, was exacerbated by the reiteration of unwanted 
advances by Terry, and petitioner's inability to protect herself (VI; 26-28) Third, until November 1995, petitioner's bipolar 
disorder had been undetected because petitioner had never been in a state of agitation sufficient for anyone to consider the 
diagnosis (II 28) In Dr. Blosser's opinion, the bipolar disorder became manifest and required medication because of the sexual 
harassment petitioner expenenced at work (VI;28) 

180. Mary Edith Watkins, petitioner's psychotherapist, testified that Terry's sexual remarks, which would have 
shocked and offended any one, had a particularly profound impact in petitioner's case because of her history of childhood sexual 
abuse. (IV; 108-10) Terry's conduct triggered the old emotions and feelings that petitioner had expenenced when she was abused 
by her stepfather (IV; 110) The tnggenng of those emotions continued when the Department ignored her reports of Terry's 
harassment, replicating petitioner's experience when her mother ignored her reports of her stepfather's abuse. (IV; 1 10) 

181. In the opinion of Dr. Blosser and Ms. Watkins, petitioner's reaction to Terry's conduct was not the product of 
hyT^ersensitivity. (IV;107-09, 120-21; VI;70-71) 

182 On the issues of the psychological impact of the harassment on petitioner, and petitioner's reaction to Terry's 
conduct, respondent presented no expert testimony to counter the testimony of Ms. Watkins and Dr. Blosser. 

D. THE STATE'S HANDLING OF EVIDENCE 

183 In discovery requests served on July 16. 1996 (Request for Production No. 12), October 15, 1996 (Request for 
Production No. 14), and October 22, 1996 (Request for Production No. 33), petitioner requested respondent to produce the 
following documents: 

a. All documents regarding claims that Robert Terry engaged in acts of sexTial 
harassment or other sexually inappropnate behavior, including but not limited to, all 
documents regarding respondent's investigation of such claims. 

b. All documents in the files of the Equal Employment Opportunities office of the 
Department of Correction regarding allegations of se.xual harassment and/or other 
allegedly inappropriate conduct by Robert Terry. 

c. All documents regarding the in\esUgation by the EEO Manager (and his agents) of 
the allegations made by petitioner, including, but not limited to, all notes and 
transcripts of inteniews with witnesses, and all documents regarding 
communications between the EEO Manager's office and the Division of Adult 



1397 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



Probation and Parole, including, but not limited to, all correspondence, memoranda 
and notes. 

(Copies of respondent's discovery responses are attached as Exhibits A, B and C to Petitioner's Motion to Compel Production of 
Documents, filed on March 3, 1997). 

184. On March 3, 1997, based on information provided in confidence by a DOC employee, petitioner filed a motion 
to compel production of documents. The ALJ granted the motion on March 4, 1997. 

185. On March 5, 1997, more than three months after the hearing began, and more than six months after respondent 
responded to petitioner's initial request for production, respondent provided a supplemental response to petitioner's request for 
production of documents. Petitioner submitted a copy of the supplemental response to the ALJ on March 6, 1997. The 
supplemental response was admitted into evidence as Petitioner's Exhibit 60 (PX 60) on March 26, 1997. Respondent's written 
response states: 

RESPONSE : Two documents numbered 903-911 and 912-918 respectively are Owen 
Sanders' working copy of the DOC's EEO Case Prospectus prepared in this case and a copy 
[of] the EEO Prospectus initially submitted to Mr. Beck. The latter copy of the Prospectus 
contains handwntten notes made by Mr. Fullwood of amendments which subsequently were 
made to the Prospectus Neither of these documents ever were placed in the investigative 
case file but rather were maintained by Ms. Saunders [sic] in a personal file containing 
examples of reports which she used in her work. 

(PX60) 

186 One of the documents attached to respondent's March 5, 1997 written response was the February 7, 1996 report 
of the EEO OflTice, with Alfonza Fullwood's handwritten notes. (PX60) That report was identified by Fullwood at the hearing on 
March 26, 1997, and filed as Petitioner's Exhibit 64. (Xll: 165) 

187. On March 26, 1997, as part of her rebuttal case, petitioner read into the record excerpts from Alfonza 
Fullwood's deposition and filed the entire deposition as Petitioner's Exhibit 62. (Xll:233) 

188. In his deposition, taken on No\ ember 4, 1996, Alfonza Fullwood testified that PX20 (the February 26, 1996 
report) was "the exact form" that Sanders submitted to him initially and that the only changes he made were correcting "some 
grammatical errors or typographical mistakes" (Xll 76; PX62 at 43) At the hearing on March 26, 1997, Fullwood admitted 
that, after discussing the report with Theodis Beck, he (Fullwood) directed Sanders to change the conclusion of the report and 
add language stating that "Mr Terry's conduct did not nse to the level of sexual harassment." (XII: 123-25; 157-58) 

189. At Alfonza Fullwood's deposition, petitioner's counsel asked the witness to e.xplain what he meant by stating in 
the February 26 report (PX 20) that "Mr. Terrv's conduct did not nse to the level of sexual harassment." Fullwood answered as 
follows: 

You would have to ask Ms. Gwen Sanders. It is her conclusion drawn. I think it 
would be appropnate for you B to ask her what factors she considered B what was her 
thought process that convinced her that the allegation did not nse to the level of sexual 
harassment. 

(XII:99; PX62 at 100-01). At the heanng on March 26, 1997, Alfonza Fullwood admitted that he, not Sanders, wrote the 
statement ("Mr. Terry's conduct did not rise to the level of sexual harassment"), and that he instructed her to put the statement in 
the report. 

190. At the close of Alfonza Fullwood's deposition, the follow colloquy occurred: 

Q. Are > ou aware of any other documents in your office about this case other than this 

report B and when I say "in your office," I mean either now or at anj; time . 

A Okav. 



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CONTESTED CASE DECISIONS 



Q. — other than this report, and the notes of the mter%'iews that I believe you 

mentioned that you ha\e passed on to Ms. Oguah'' 

A. I know of no other documents B about this case? 

Q. Right Any memos, any correspondence. an\thing else? 

A. You are not talking about the B will that include the actual document contesting the 

B the contested case heanng petition note*^ 

Q. All nght. LeaMng out any papers that ha\ e been filed in this case. Okay'' 

A. Okay. Not that I know of 

(XII: 107-08; PX 62 at 118-19 (emphasis added)). At the heanng on March 26. 1997. Alfonza Fulhvood admitted that the 
Februan. 7 report (PX 64) was an official report of the EEO Office and was transmitted as an official report of the EEO Office to 
Theodis Beck. Director of the Division of Adult Probation and Parole (DAPP). on or about February 7. 1996. (XII: 120-21) 
FuUwood confirmed that the manila folder for petitioner's case file, maintained by the EEO Office, indicates that the case was 
opened on Januaiy 10. 1996 and closed on February 7. 1996. (XII: 129-30) Fulhvood further admitted that the Februar\- 7 report 
remained m the EEO Office files until shorth' before his deposition on November 4. 1996. when he personally disposed of the 
report by placing it m a trash can in his office. (XII: 133-36. 138-39) 

191 Alfonza Fullwood was deposed on No\ember 4. 1996 On No\ember 14. 1996. Alfonza Fulhvood signed a 
\erification attesting that the deposition transcnpt was correct, and declined to make any corrections to the portions of the 
deposition cited abo\e. 

192. Alfonza Fulhvood \enfied respondent's initial response to petitioner's request for production of documents on 
August 16. 1996. ( See Exhibit A to petitioner's Motion to Compel Production of Documents (March 3. 1997)). 

193. In Its supplemental response to petitioner's request for production of documents, served on March 5. 1997. 
respondent attached what it descnbed as "Gwen Sanders" working copy of the DOC's EEO Case Prospectus prepared in this case 
and a copy [of] the EEO Prospectus initially submitted to Mr. Beck." (PX60) The response continued: "Neither of these 
documents e\er were placed m the investigatne case file. . ." (PX60) Alfonza Fullwood \enfied the response on March 5. 
1997. stating under oath "that the foregoing is true and conect to the best of his knowledge and belief" At the heanng on 
March 26. 1997. Alfonza Fulhvood adimtted that, contran,- to the statement in the March 5. 1997 response, PX 64 had been a 
part of the imestigatne case file until it was remo\ed shortly before his deposition. (XII:114. line 14; 115. line 23; 117, line 17) 

E. ASSESSMENT OF CREDIBILITY OF PETITIONER AND TERRY 

194. At the heanng. Terry denied each of petitioner's allegations of sexually offensi\e comments or conduct. 
(IX: 166-75) With respect to those allegations, the ALJ credits petitioner's testimony, and does not credit Teny's denials. In 
resolving the issue of credibilit\\ the .ALJ considered the following: 

a) The demeanor of petitioner and the demeanor of Terrv'. observed by the 
Court dunng many hours of direct and cross examination. 

b) The testimony of Angela Johnson. Arlmda Braswell. Dr. Jack McWay and 
Dr. Anita Blosser that petitioner reported Teny's sexually offensive conduct 
to them soon after the conduct occurred, at a time when Tern' considered 
petitioner's job performance to be completely satisfacton.'. (X:85; PX16) 
( See also PX20 at 5 (DAPP employees Debbie Babb. Scott Brewer. Megan 
Betts. and Dwayne Smith all stated that petitioner told them of the motel 
incident)). 

c) The absence of e%idence that petitioner has e\er been untruthful in am- of 
her other personal or professional interactions, (See. e^. 111:144. 147 
(Cash); 1V:6. 80-81 (Watkms). V:47-49 (Home); Vl:9 (Blosser); X:148 (Jo 



1399 NORTH CAROLINA REGISTER January 15, 1998 12:14 



1 

CONTESTED CASE DECISIONS 



' 


b) 




c) 




d) 


(I:54;III;175) 





Williams)) 

d) In addition to petitioner, Arlinda Braswell testified that Terry had subjected 

her to sexually offensive conduct. The ALJ finds Braswell to be credible, 
and Terry's denial with respect to her testimony not to be credible. 

195. Although not necessary to the ALJ's resolution of the issue of credibility, the Court further finds that petitioner's 
spontaneous offer to submit to a polygraph examination tends to support her credibility. 

CONCLUSIONS OF LAW 
A. CONTESTED ISSUES 

The contested issues heard by the ALJ were as follows: 

a) Did respondent subject petitioner to se.xual harassment and deny her equal 

opportunity for employment because of her sex, in violation of N.C.G.S. § 126-16? 

Did respondent fail to take prompt and appropriate action to remedy Robert Terry's 
acts of sexual harassment, in violation of § 126-16? 

Did respondent retaliate against petitioner for protesting sexual harassment, in 
violation of N.C.G.S. § 126-17? 

Did respondent terminate petitioner without just cause, in violation of 
NCOS. § 126-35? 



1. Sex Discrimination 

II. Section 126-16 of the General Statutes requires state agencies to "give equal opportunity for employment . . . without 

regard to . . . sex." Under State Personnel regulations, "sexual harassment" is "deemed a form a sex discrimination prohibited by 
G.S. § 126-16." 25 NCAC 1C.0214. Effective September 1, 1992, respondent formally adopted a se.xual harassment policy, and 
also recognized that sexual harassment is "a form of sex discrimination prohibited by North Carolina G.S. § 126-16." (PX 30) 

1. State personnel regulations define se.xual harassment as follows: 

Sexual harassment is defined as deliberate, unsolicited, and unwelcome verbal and/or 
physical conduct of a sexual nature or with sexual implications by a supervisor or co-worker 
which: 

(1) has or may have direct employment consequences resulting from the 
acceptance or rejection of such conduct, or 

(2) creates an intimidating, hostile or offensive working environment; or 

(3) interferes with an individual's work performance. 

25 NCAC IC 0214(b) (emphasis added) Respondent's personnel manual contains the same definition. (PX 30) 

2. The definition of sexual harassment in the State personnel regulations is similar to the definition of sexual 
harassment in federal regulations interpreting Title VII, 29 C F.R § 1604 11(a), and the standard for actionable sexual 
harassment articulated by the United States Supreme Court in Meritor Savings Bank v, Vinson , 477 U.S. 57 (1986) and Harris v, 
Forklift Systems . 510 U.S. 17 (1993). In employment discrimination cases, our courts look to federal decisions for guidance. 
N.C. Department of Correction v. Gibson , 308 N.C. 131, 136. 301 SE.2d 78.82 (1983). 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1400 



CONTESTED CASE DECISIONS 



3. Tern's conduct toward petitioner meets the definition of sexual harassment. Terr.- repeatedly subjected 
petitioner to ofFensne touching, sexual suggestions and innuendoes He made an explicit proposition that she spend the night 
with him at a state-sponsored seminar. He then subjected her to degiading mquines about her relationships with other men. 
Each of these incidents was deliberate, unsolicited and unwelcome 

4. Tern's conduct had each of the ad\erse consequences identified in the State personnel regulations as altematne 
bases for a finding of sexual harassment. First, the repeated sexual comments and unwelcome touchmgs. coupled with an 
explicit se.xual proposition, created an offensive working environment. 25 NCAC IC 0214(b)(2)(2). Second. Tenv's harassment 
interfered with petitioner's work performance by increasing the sevent}' of her headaches and intensifying symptoms of her 
bipolar disorder, to the point of requiring medication with side effects that directly affected her job performance, and causing 
petitioner to miss time from work. 25 NCAC lC.0214(b)(2)(3). Finally. Terry's conduct had direct employment consequences 
for petitioner: when she rebuffed his advances, he retaliated against her b\ imposing unreasonable demands, guing her 
insufficient support and subjecting her to undue cnticism for inconsequential performance issues. 25 NCAC lC.02124fb)(2)(l). 

5. Respondent subjected petitioner to sexual harassment and denied her equal opportunity for employment because 
of her sex. in \iolation of N C G.S. § 126-16 

2. Investigation and Remedial Action 

6 .An employer is liable for an employee's se.xual harassment of another worker if the employer had actual or 

constructne knowledge of the e.xistence of the sexual harassment and failed to take prompt and adequate remedial action. 
Paroline v. UnisNs Corp . 879 F.2d 100. 106 (4th Cir. 1989). 

7. When an employee reports that she has been subjected to se.xual harassment, the emplo\er is "obliged to 
in\estigate [the employee's] charges and to present a reasonable basis for its subsequent actions" Swentek \_ USAIR. Inc. . 830 
F.2d552. 558(4thCir' 1987). 

8. In state tort claims based on se.xual harassment, the North Carolina courts haNe recognized the employer's duty 
to in\estigate Under North Carolina law. an employer may be held liable for the intentional torts of an employee under the 
doctnne of respondent supenor where the employer ratifies the employee's tortious conduct. Denning-Bovles v WCES. Inc. . 123 
N.C- App. 409. 414. 473 S E.2d 38. 41 (1996). In order to show that the wrongful act of an employee has been ratified by his 
emplo>er. it must be shown that the emplo>er had knowledge of all matenal facts and circumstances relati\e to the wrongful act. 
and that the employer, by words or conduct, shows an intention to ratify' the act. Id. The jury may find ratification from any 
course of conduct on the part of the principal which reasonably tends to show an intention on his part to ratify- the agent's 
imauthonzed acts Id Such course of conduct may involve an omission to act Id- 

If the purported pnncipal is shown to ha\e knowledge of facts which would lead a person of 
ordinan. prudence to in\estigate further, and he fails to make such im estigauon. his 
affirmance without qualification is e\'idence that he is willing to ratify' upon the knowledge 
which he has. 

Id ( quoting Restatement (Second) of Agency. ' 91. Comment e. p 235 (1958)). 

9. Federal and state courts have imposed liability on employers who failed to conduct a proper imestigation of 
sexual harassment claims. Yates v A\'co Corp . 819 F.2d 630. 635 (6th Cir. 1987). Robinson v, Jacksomille Shipvards. Inc . 
760 F. Supp. I486. 57 FEP 971. 1009 (M.D. Fla. 1991). Denning-Bo%'les v, WCES. Inc. . 123 N.C. App. at 417. 473 S E.2d at 43. 
see Risinger \_ Ohio Bureau of Workers' Compensation . 883 F 2d 475. 481-83 (6th Cir. 1989) (racial discnminauon). 

10. The investigation of petitioner's gne\ance by respondent's EEO Office was plainly inadequate. First, the 
in\'estigator did not inteniew ke> witnesses named by petiuoner. including Dr. Anita Blosser. Man.' Edith Watkins. and Kim 
Chnstopher The EEO Office's policy of limiting its inteniews to current agency emplo>'ees excluded rele\'ant information from 
consideration, and biased the process m fa\'or of the agency and against the grievant. Second, petitioner's offer to take a 
polygraph examination was rejected, and then completely discounted as a factor in assessing her credibilit}'. Third, the integnty 
of the in\estigation was compromised by the EEO Manager's alteration of the conclusion of the report in response to a telephone 
call by the Director of DAPP Fourth, the conclusion of the revised report that "Mr. Teny's conduct did not nse to the le\el of 
sexual harassment" is not supported b> the e\'idence presented in the report, and is contran to the e\'idence presented at the 
hearing. Fifth, respondent should ha\e reopened the investigation when it recened information about other \'ictims of Terry's 



1401 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



harassment. 

1 1 Evidence that a managing officer of a party has engaged in misconduct that constitutes an obstruction of justice, 

such as the "destruction or concealment of relevant documents," is treated as an admission. McCormick, Evidence ' 265 at 191 
(4th ed. 1992). EEO Manager Alfonza Fullwood's handling of evidence about the investigation strongly suggests that respondent 
knew its investigation was fiindamentally flawed and could not withstand scrutiny. See Brandis & Broun. 2 North Carolina 
Evidence § 210 at 60 (4th ed. 1993) (admissions implied by conduct include "false, contradictory or evasive statements" and 
"attempts to suppress evidence"). 

12. The only action that respondent took to remedy Terry's misconduct was a bnef "coaching" session on April 10, 
1996. Respondent utterly failed to implement the modest plan it announced at the session. The coaching session falls far short 
of the adequate remedial action that the law requires. See Yamaguchi v, U.S. Dept. of the Air Force, 109 F.3d 1475, 1482-83 
(9th Cir. 1997); Steiner v Showboat Operating Co. . 25 F.3d 1459, 1464 (9th Cir. 1994); Waltman y. International Paper Co. , 
875 F.2d 468, 479 (5th Cir. 1989). See also Denning-Bovles \l WCES, Inc. , 123 N.C. App. at 417, 473 S.E.2d at 43 (employer 
ratified employee's acts of sexual harassment by failing to take adequate remedial action); Brown v Burlington Industries, Inc. , 
93 N.C. App. 431,438, 378 S.E.2d 232. 236 (1989) (same): Hogan v. Forsyth Country Club Co. . 79 N.C. App. 483,492-93, 340 
S.E.2d 116, 122 (1986) (same). 

13. Respondent failed to take prompt and adequate action to remedy Robert Terry's acts of sexual harassment, in 
violation of N.C. G.S. § 126-16. 

3. Retaliation 

14. Section 126-17 of the General Statute provides that "no state department, agency, or local political subdivision 
of North Carolina shall retaliate against an employee for protesting alleged violations of G.S. § 126-16." See NCAC 
11.2405(l)(c) ("Retaliation against those who protest alleged discrimination shall be prohibited"). 

15. To establish a claim of retaliation under ' 126-17. an employee must show that 1) she protested an alleged 
violation of 126-16; 2) the employer took adverse employment action against the employee; and 3) a causal connection existed 
between the emplo>ee's protected activity and the employer's adverse action. See Hopkins v, Baltimore Gas and Electnc Co. . 77 
F.3d 745, 754 (4th Cir. 1996); Ross \i Communications Satellite Corp. , 759 F 2d 355, 365 (4th Cir. 1985). To establish the 
requisite causal connection, the employee must show that her protected activity was a "substantial causative factor" in the 
employer's decision. See Aune v University- of North Carolina , 120 N.C. App. 430, 434, 462 S.E.2d 678, 681 (1992) (N.C. 
whistle blower statute); Brooks v Stroh Brewen' Co. . 95 N.C. App. 226, 230, 382 S.E.2d 874, 878 (1989) (OSHA retaliatory 
discharge); cf. Lenzer v, Flaherty- , 106 N.C. App 496, 510, 418 S.E 2d 276, 284 (1992) (speech protected by First Amendment; 
"substantial or motivating factor"). Once the employee has shown that the employee's activities were protected and were a 
substantial factor in the employer's decision, the burden shifts to the employer to show that the same decision would have been 
made if the employee had not engaged in the protected activity-. Brooks v Stroh Brewery Co. , 95 N.C. App. at 230, 382 S.E. 2d 
at 878. Courts recognize that circumstantial evidence is often the only method of proving retaliation. Lenzer v, Flaherty , 106 
N.C. App. at 510, 418 S.E.2d at 284: Brooks v. Stroh Brewery- Co . 95 N.C. App. at 237, 382 S.E.2d at 882. 

16. By filing a grievance claiming that she had been subjected to sexual harassment, petitioner engaged in the 
statutorily protected activity of protesting alleged violations of § 126-16. 

17. Respondent took the following adverse employment actions against petitioner after she filed her grievance: 

a. On March 18, 1996, respondent ordered petitioner to work in the same office with 
Terry, knowing that, in the opinion of petitioner's physician, she was not able to 
work in his presence. 

b. In March 1996, respondent gave petitioner an unfavorable performance evaluation. 

c. On April 18, 1996, respondent again ordered petitioner to work in the same office 
with Terry, after having received additional confirmation that she was not able to 
work in his presence, and threatened her with termination if she did not do so. 

d On May 15, 1996, respondent terminated petitioner's employment 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1402 



CONTESTED CASE DECISIONS 



18. Petitioner has established, by a preponderance of the e\idence. that a substantial causath'e factor m each of the 
ad\erse employment actions listed abo\e \sas petitioner's action in filing a grievance alleging that Terry had subjected her to 
sexual harassment Respondent has failed to show, by a preponderance of the evidence, that the adverse decisions would ha\e 
been made if petitioner had not engaged m the protected acti\ity. 

19. Respondent unlawfully retaliated against petitioner by reassigning her on March 18, 1996 to work in the same 
office with Terry, in \iolation of N C G S. § 126-17. 

20. Respondent unlawfully retaliated against petitioner by gi\ing her an unfavorable performance e\aluation in 
March 1996. in violation of § 126-17. 

21. Respondent unlawfully retaliated against petitioner on Apnl 18. 1996 by again ordenng her to work in the 
same office with Teny. and threatemng her with termination if she did not do so. m violation of N C G S. § 126-17. 

22 Respondent unlawfully retaliated against petitioner by tenmnating her employment on May 15. 1996. m 

violation of N C G S §m 126-17. 

23. Respondent retaliated against petitioner for protesting sexual harassment, in violation of N.C.G.S. § 126-17. 
4. Tennination Without Just Cause 

24. N C G.S. § 126-35 provides that "no career State employee subject to the State Personnel Act shall be 
discharged ... for disciplinan reasons, except for just cause." 

25. N.C.G.S § 126-35 creates an interest in continued employment that is protected by the due process provisions 
of the Umted States and North Carolina constitutions. Luck v. Emplo\ment Secunt^ Commission . 50 N.C. App. 192, 272 S.E.2d 
607(1980). 

26. To provide protection for the employee, N.C.G.S. § 126-35 and state regulations. 25 NCAC IJ. 0613(4). 
establish procedural requirements that must be followed before an employee may be dismissed. See, e^, 0\\en v^ UNC-G 
Physical Plant. 121 N.C. App. 682. 687. 468 S.E.2d 813. 817 (1996) (regulations); Gainev v. N.C. Department of Justice . 121 
N.C. App. 253, 260. 465 S.E.2d 36. 42 (1996) (statute). 

27. Petitioner was a career State employee within the meaning of N.C.G.S. §§ 126-1A(1) and 126-35 at the time 
respondent terminated her employment 

28. Respondent was assigned the burden of proving that just cause exists to justify- petitioner's dismissal. Howe\er. 
the ALJ reaches Conclusions 30-37 regardless of where the burden of proof lies. 

29. Petitioner immediately responded to respondent's Apnl 18. 1996 notice of possible termination Before the 
Apnl 29 deadline in James Fullwood's letter, petitioner pro\ided respondent with cntical additional information that had a direct 
bearing on the resolution of her claim of se.\"ual harassment, and asked Fullwood to contact her attorney. (PX25; PX26) At a 
bare minimum, respondent was required to extend petitioner's penod of lea\e without pay until it responded to her attorney. In 
terminating petitioner's employment without responding to the timely communication from her attorney, respondent acted 
without just cause. 

30. Respondent failed to conduct a fair and thorough in\estigalion of petitioner's gne\ance When it recened 
important additional information about other victims of harassment, it failed to reopen its investigation. Because the termination 
decision w as directly linked to the outcome of an imestigation that was fundamentally flaw ed. the termination w as w ithout just 
cause. 

31. There was not "just cause" to terminate Petitioner's employment. 

32. In dismissing petitioner, respondent failed to follow any of the procedural requirements set forth in N.C.G.S. § 
126-35 and 25 NCAC 1J.0613(4). 



1403 NORTH CAROLINA REGISTER January 15, 1998 12:14 



CONTESTED CASE DECISIONS 



33. The termination of petitioner's employment Molated fiindamental principles of fairness, petitioner's due process 
rights under the federal and state constitutions, the procedural requirements of N.C.G.S. § 126-35 and 25 NCAC 1J.0613(4). and 
the just cause requirement of N.C.G.S. § 126-35. 

34. In its termination letter, respondent erroneously labeled petitioner's termination as a "resignation without 
written notice" (PX27) In fact, petitioner never resigned, but instead was dismissed by respondent. E\en if petitioner's failure 
to report to work in the Vance County office on Apnl 29, 1996 could properly be deemed a "resignation," respondent would still 
be liable for constructive discharge. 

35. A constructive discharge occurs when an employer deliberately makes an employee's working conditions 
intolerable and thereby forces her to quit her job. Martin v, Cavalier Hotel Corp. , 48 F.3d 1343, 1350 (4th Cir. 1995). In 
assessing the deliberateness of the employer's conduct, an employer is held to intend the reasonably foreseeable consequences of 
its actions. Id. at 1355. In this case, the evidence demonstrates that petitioner's purported "resignation" was a reasonably 
foreseeable consequence of respondent's order on Apnl 18, 1996 that she return to work in the same office with the man who had 
sexually harassed her. Indeed, in light of Dr Blosser's medical opinion, provided to respondent on January 10 and March 21, the 
inference is inescapable that respondent knew its order would force petitioner's resignation.^ 

36. Respondent terminated petitioner without just cause, in violation of N.C.G.S. § 126-35. 
B. REMEDY 

37. The Personnel Commission has the authonty to remedy violations of N C.G S § 126-16 by ordenng 
"reinstatement, back pay, transfer, promotion or other appropriate remedy." 25 NCAC IB 0434 The Commission also has the 
authority to order "other corrective remedies to ensure that the same or similar discnminator\ acts do not recur." Id. The 
Commission has the authority to award front pay, 25 NCAC IB 0422, and restoration of vacation and sick leave, 25 NCAC 
IB 0423, retirement benefits, 25 NCAC lB0421(e), and health insurance benefits, 25 NCAC IB 0424. In addition, the 
Conmussion has the authonty to order the removal of any matenal in a personnel file that it finds to be inaccurate or misleading. 
25 NCAC IB. 0430. The Commission has the authority to award attorney's fees and costs. N.C.G.S. § 126-4(11); 25 NCAC 
1B.0414. 

RECOMMENDED DECISION 

Based on the foregoing findings of fact and conclusions of law, the ALJ recommends that: 

a. Petitioner be reinstated in a comparable position in Vance County in an office where she will 
not be in contact with Robert Terry . Alternatively, if no such position is available, the ALJ 
recommends that petitioner be awarded front pay until she is reinstated to such a position. 

b. Petitioner be compensated for the loss of ^acatlon and sick leave from January 4, 1996 
through January 17, 1996 and March 19, 1996 through March 29, 1996. 

c. Petitioner be compensated for travel expenses to and from Louisburg for the period from 
January 18, 1996 through March 18. 1996. 

d. Petitioner receive back pay for the period from March 30. 1996 until reinstatement. 

e. Petitioner be compensated for the loss of health insurance benefits during the period of her 
unemployment 



'^e fact that "North Carolina courts have yet to adopt the employment ton of constructive discharge," Graham v^ Hardee's Food 
Systems . 121 N.C. App. 382, 385, 465 S.E.2d 558, 560 (1996), does not mean that they will not do so, when they are presented 
with a proper claim. In determining whether such a cause of action exists, Nonh Carolina couns will look to federal decisions for 
guidance. N.C. Depanment of Correction v. Gibson . 308 N.C. at 136, 301 S.E.2d at 82. The right of an employee to seek relief 
for constructive discharge is well established under federal employment discrimination law. Manin \l Cavalier Hotel Corp. . 48 
F.3d at 1353-54. 



12:14 NORTH CAROLINA REGISTER January 15, 1998 1404 



COSTESTED CASE DECISIONS 



Petitioner's retirement benefits be fully restored 

Inaccurate or misleading material in petitioner's personnel file be remo\ed. including 
memorandum from Tern to Kilbom dated Januan. 4. 1996 (PX8). memorandum from 
Kilborn to Wooten dated Januan, 11. 1996 (RX3). Februar\- 26. 1996 EEO case prospectus 
(PX20). March 1996 performance e\aluation (PXll). letter from James Fulhvood to 
petitioner dated March 15. 1996 (P.X19). letter from James Fullwood to petitioner dated Apnl 
18. 1996 (P.X 24). letter from James Fullwood to petitioner dated May 15, 1996 (PX27). and 
other documents pertaining to petitioner's termination. 

Petitioner be awarded her attorney's fees and costs. 



I 

c 



This the 8™ of December, 1997. 



Thomas R. West 

Temporan .A.dministrati\ e Law Judge 
ORDER 

It IS hereby ordered that the agenq.' sene a cop> of the final decision on the Office of Admimstratn e Heanngs. P O. 
Drawer 27447. Raleigh. N.C. 27611-7447. in accordance with North Carolina General Statute 150B-36fb). 

NOTICE 

The agency making the final decision in this contested case is required to gne each parts an opportunits to file 
exceptions to this recommended decision and to present written arguments to those in the agency who will make the final 
decision GS 150B-?6(a) 

The agenc>' is required by GS. 150B-36(t) to sene a copy of the final decision on all parties and to furnish a copy to the 
parties' attorney of record and to the Office of Administrati\e Heanngs. 

The aeena that will make the final decision in this contested case is the State Personnel Commission. 



f 



4 



1405 NORTH CAROLINA REGISTER January 15, 1998 12:14 



NORTH CAROLINA ADMINISTRATIVE CODE CLASSIFICATION SYSTEM 



1 he North Carolina Administrative Code (NCAC) has four major subdivisions of rules. Two of these, titles and 
chapters, are mandatory. The major subdivision of the NCA C is the title. Each major department in the North 
Carolina executive branch of government has been assigned a title number. Titles are further broken down into 
chapters which shall be numerical in order. The other two, subchapters and sections are optional subdivisions 
to be used by agencies when appropriate. 



TITLE 



TITLE/MAJOR DIVISIONS OF THE NORTH CAROLINA ADMINISTRATIVE CODE 
DEPARTMENT LICENSING BOARDS CHAPTER 



1 


Administration 


Acupuncnire 


1 


2 


Agriculture 


Architecture 


2 


3 


Auditor 


Auctioneers 


4 


4 


Commerce 


Barber Examiners 


6 


5 


Correction 


Certified Public Accountant Examiners 


8 


6 


Council of State 


Chiropractic Examiners 


10 


7 


Cultural Resources 


General Contractors 


12 


8 


Elections 


Cosmetic Art Examiners 


14 


9 


Governor 


Dental Examiners 


16 


10 


Human Resources 


Dietetics/Nutrition 


17 


11 


Insurance 


Electrical Contractors 


18 


12 


Justice 


Electrolysis 


19 


13 


Labor 


Foresters 


20 


14A 


Crime Control & Public Safety 


Geologists 


21 


15A 


Environment, Health, and Natural 


Hearing Aid Dealers and Fitters 


22 




Resources 


Landscape Architects 


26 


16 


Public Education 


Landscape Contractors 


28 


17 


Revenue 


Marital and Family Therapy 


31 


18 


Secretary of State 


Medical Examiners 


32 


19A 


Transportation 


Midwifery Joint Committee 


33 


20 


Treasurer 


Mortuary Science 


34 


*21 


Occupational Licensing Boards 


Nursing 


36 


22 


Administrative Procedures 


Nursing Home Administrators 


37 


23 


Community Colleges 


Occupational Therapists 


38 


24 


Independent Agencies 


Opticians 


40 


25 


State Personnel 


Optometry 


42 


26 


Administrative Hearings 


Osteopathic Examination & Reg. (Repealed) 


44 


27 


NC State Bar 


Pastoral Counselors, Fee-Based Practicing 


45 






Pharmacy 


46 






Physical Therapy Examiners 


48 






Plumbing, Heating & Fire Sprinkler Contractors 


50 






Podiatry Examiners 


52 






Professional Counselors 


53 






Psychology Board 


54 






Professional Engineers &. Land Surveyors 


56 






Real Estate Appraisal Board 


57 






Real Estate Commission 


58 






Refrigeration Examiners 


60 






Sanitarian Examiners 


62 






Social Work Certification 


63 






Soil Scientists 


69 






Speech & Language Pathologists & Audiologists 


64 






Substance Abuse Professionals 


68 






Therapeutic Recreation Certification 


65 






Veterinary Medical Board 


66 



Note: Title 21 contains the chapters of the various occupational licensing boards. 



12:14 



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